Order Granting in Part and Denying in Part Motion to Dismiss — Gold Club SF, LLC v. United States SBA
Summary
Order in Gold Club SF, LLC, et al. v. United States Small Business Administration, et al., Case No. 24-cv-04241-LJC, Northern District of California, dated September 30, 2025. The plaintiffs, fifteen bars and adult entertainment venues that received twenty-four PPP loans and applied for forgiveness, challenge the size-based affiliation rules, the prurient business exclusion and the OHA appeal procedures. The court granted in part and denied in part the defendants' motion to dismiss and struck the jury demand. Counts Six, Seven and Eight on the affiliation exception provision were dismissed without prejudice as unripe and for failure to challenge a final agency action, while facial challenges in Counts Nine and Eleven survive. The order, naming Magistrate Judge Lisa J. Cisneros, allows an amended filing by October 31, 2025.
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“Order Granting in Part and Denying in Part Motion to Dismiss — Gold Club SF, LLC v. United States SBA.”
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Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 1 of 71
1
2
3
4 UNITED STATES DISTRICT COURT
5 NORTHERN DISTRICT OF CALIFORNIA
6
7 GOLD CLUB SF, LLC, et al., Case No. 24-cv-04241-LJC
Plaintiffs,
8
ORDER GRANTING IN PART AND
v. DENYING IN PART DEFENDANTS'
9
MOTION TO DISMISS; GRANTING
10 UNITED STATES SMALL BUSINESS MOTION TO STRIKE
ADMINISTRATION, et al.,
11 Re: Dkt. No. 28
Defendants.
12
United States District Court
13 During the COVID-19 pandemic, Congress enacted the Paycheck Protection Program
14 (PPP), which administered two rounds of loans to small businesses. Certain categories of
15 businesses were ineligible for these loans, including businesses that, when considered with their
Northern District of California
16 affiliates, were too large to qualify as “small” businesses, and businesses that presented live
17 performances of a prurient sexual nature. Plaintiffs, a group of fifteen bars and adult
18 entertainment venues that received PPP loans and then applied for loan forgiveness, challenge
19 these two exclusions. Defendants moved to dismiss the majority of Plaintiffs’ claims, arguing that
20 Plaintiffs lack standing under Article III of the U.S. Constitution, many claims are not yet ripe or
21 not otherwise reviewable under the Administrative Procedure Act (APA), and others fail to state a
22 cause of action. Having considered the parties’ papers and arguments, the Court GRANTS in part
23 and DENIES in part Defendants’ motion to dismiss and GRANTS Defendants’ request to strike
24 Plaintiffs’ jury demand.
25 I. BACKGROUND
26 Plaintiffs Gold Club – SF, LLC (Gold Club); Dallas Food and Beverage, LLC (Dallas);
27 2345 Meacham, LLC (Meacham); 11000 Reeder, LLC (Reeder); S.A.W. Entertainment Limited
28 (S.A.W.); Smithville Bistro, LLC (Smithville); Deja Vu Showgirls of Las Vegas, LLC (Deja Vu);
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 2 of 71
1 Office Minneapolis, LLC (Office); Cats Meow of Vegas, LLC (Cats Meow); Cats 701 Bourbon,
2 LLC (Cats NOLA); Pole Position at Tacoma, LLC (Pole Position); Jamme Holdings, LLC
3 (Jamme); 90’s Minneapolis, LLC (90’s); Las Vegas Bistro, LLC (Las Vegas); and Stockton
4 Enterprises, LLC (Stockton) collectively applied for and received twenty-four PPP loans.
5 Plaintiffs have since applied to the United States Small Business Association (SBA) to have their
6 loans forgiven. Some applications for loan forgiveness were granted, others were granted and then
7 subject to additional audits, and others were denied and administratively appealed by Plaintiffs.
8 The SBA denied applications for forgiveness and initiated audits based on its concerns that certain
9 Plaintiffs were ineligible for PPP loans because they exceeded the size limitations and presented
10 entertainment of a prurient sexual nature. At the time this lawsuit was filed, only one application
11 for loan forgiveness, for Plaintiff Gold Club’s second loan, had been denied both initially and after
12 administrative appeal.
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13 Defendants are the SBA; Kelly Loeffler, the administrator of the SBA;1 the Office of
14 Hearings and Appeals (OHA), which hears administrative appeals of SBA loan denials; Kimberly
15 McLeod, the assistant administrator and chief hearing officer for the OHA; and the United States.
Northern District of California
16 Plaintiffs filed the instant action against Defendants, alleging that the size- and prurience-
17 based exclusions to the PPP violate their constitutional rights and the APA. They further claim
18 that the procedures governing OHA appeals are unconstitutional and violate the APA, that
19 Defendants are estopped from denying their applications for loan forgiveness, that a provision of
20 the act governing the SBA and prohibiting claimants from obtaining injunctions against the SBA
21 is unconstitutional, and that the decision to deny Gold Club’s application for loan forgiveness
22 must be overturned.
23 A. The SBA’s Section 7(a) Loan Program
24 Congress did not create the PPP from scratch, but rather built it off of the SBA’s
25 preexisting Section 7(a) loan program. The following discussion provides an overview of the
26
1
27 Isabel Casillas Guzman was the SBA administrator when this case was filed but has since been
replaced by Ms. Loeffler. https://www.sba.gov/about-sba/organization/sba-leadership
28 [https://perma.cc/8SZW-LZG8]. Pursuant to Federal Rule of Civil Procedure 25(d), Ms. Loeffler
has been automatically substituted as a defendant in place of Ms. Guzman.
2
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 3 of 71
1 SBA’s Section 7(a) loan program and the relevant differences between the PPP and the Section
2 7(a) loan program.
3 The SBA was created by Congress in 1953 through the enactment of the Small Business
4 Act of 1953, 15 U.S. C. §§ 631-36 (SBA Act) in order to “aid, counsel, assist, and protect … the
5 interests of small-business concerns.” 15 U.S.C. § 631(a); see Small Bus. Admin. v. McClellan,
6 364 U.S. 446, 447 (1960). Through the SBA Act, the SBA was “given extraordinarily broad
7 powers to accomplish these important objectives, including that of lending money to small
8 businesses.” McClellan, 364 U.S. at 447. Section 7(a) of the SBA Act authorizes the SBA to
9 “make loans to any qualified small business concern” either directly or “in cooperation with banks
10 or other financial institutions,” subject to certain procedures and restrictions. 15 U.S.C. § 636(a).
11 These loans are referred to as “Section 7(a)” loans. The SBA administrator has the authority to
12 “make such rules and regulations as he deems necessary to carry out the authority vested in him by
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13 or pursuant to” the SBA Act and the SBA has broad authority to “establish general policies …
14 which shall govern the granting and denial of applications for financial assistance,” particularly in
15 regard to “the public interest involved in the granting and denial” of loans. 15 U.S.C. §§ 633(d);
Northern District of California
16 634(b)(6)).
17 The Code of Federal Regulations, Title 13, Chapter I, Parts 120-121 sets out extensive
18 rules regarding eligibility for Section 7(a) loans. As relevant here, businesses are precluded from
19 Section 7(a) loans if the business 1) is too large to qualify as a “small” business or 2) presents
20 “live performances of a prurient sexual nature” or derives directly or indirectly “more than de
21 minimis gross revenue through the sale of products or services, or the presentation of any
22 depictions or displays, of a prurient sexual nature.” 13 C.F.R. §§ 121.201; 120.110(p). The latter
23 regulation is known as the prurient business exclusion.
24 1. Size Limitations for Section 7(a) Loans and Affiliation Rules
25 The SBA serves small businesses. Whether a business is small enough to qualify for the
26 SBA’s programs is determined by industry-specific “size standards” based on either the
27
28
3
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1 businesses’ annual receipts or number of employees.2 See FAC ¶¶ 549-52; 13 C.F.R. § 121.201.
2 The SBA’s size standards are based on the North American Industry Classification System
3 (NAICS), a classification system promulgated by the U.S. Census Bureau, which is used by
4 numerous federal agencies.3 See 13 C.F.R. § 121.201. NAICS lists categories of businesses (such
5 as “Construction,” “Education Services,” “Agriculture, Forestry, Fishing and Hunting”), which are
6 further divided into sub-categories (for example, “Construction” includes “Residential Building
7 Construction,” “Industrial Building Construction,” and “Water and Sewer Line Construction”).
8 Each sub-category is assigned a numerical code, and businesses within the same over-arching
9 category share the same first two digits. “Accommodation and Food Services” businesses are
10 listed at NAICS Code 72. NAICS Code 72 businesses include the sub-category “Drinking Places
11 (Alcoholic Beverages),” NAICS code 722410. Mirroring the NAICS Code 72 classification, the
12 SBA size standards at 13 C.F.R. § 121.201 categorize “Accommodation and Food Services” as
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13 Sector 72 businesses. To be small enough to qualify for Section 7(a) loans, “Drinking Places
14 (Alcoholic Beverages),” Code 722410, must have annual receipts at or under $9 million to qualify
15 for SBA programs. 13 C.F.R. § 121.201.
Northern District of California
16 When evaluating if a business is small enough to qualify for a Section 7(a) loan, the SBA
17 does not consider the business in isolation. Instead, it considers if a business and its affiliates
18 exceed the size standards established in 13 C.F.R. § 121.201. See 13 C.F.R. § 121.103(a)(6).
19 Businesses “and entities are affiliates of each other when one controls or has the power to control
20 the other, or a third party or parties controls or has the power to control both.” Id. § 121.103(a)(1).
21 In determining “whether affiliation exists,” the “SBA considers factors such as ownership,
22 management, previous relationships with or ties to another [business] concern, and contractual
23 relationships.” Id. § 121.103(a)(2). The SBA considers “the totality of the circumstances, and
24 may find affiliation even though no single factor is sufficient to constitute affiliation.” Id.
25
26 2
For example, under 13 C.F.R. § 121.201, a strawberry-farming business is considered “small” if
27 its yearly receipts are less than $5.5 million. A sawmill is considered “small” if it has fewer than
550 employees.
3
28 The NAICS classifications are available online:
https://www.census.gov/naics/?58967?yearbck=2022.
4
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 5 of 71
1 § 121.103(a)(5). Throughout this Order, the Court refers to these regulations as the “affiliation
2 rules.”
3 2. The Prurient Business Exclusion
4 In addition to the size-based restrictions on eligibility for Section 7(a) loans, 13 C.F.R.
5 § 120.110 establishes that certain types of businesses are ineligible for Section 7(a) loans. As
6 relevant here, the prurient business exclusion establishes that businesses that present “live
7 performances of a prurient sexual nature” or derive “more than de minimis gross revenue through
8 the sale of products or services, or the presentation of any depictions or displays, of a prurient
9 sexual nature” are not eligible for Section 7(a) loans. 13 C.F.R. § 120.110(p). Separate and apart
10 from the prurient business exclusion, by statute, “the [SBA] is prohibited from providing any
11 financial or other assistance to any business concern or other person engaged in the production or
12 distribution of any product or service that has been determined to be obscene by a court of
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13 competent jurisdiction.” 15 U.S.C. § 633(e).
14 B. The Paycheck Protection Program
15 In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act
Northern District of California
16 (CARES Act), which established the Paycheck Protection Program (PPP) as a temporary
17 extension of the SBA’s Section 7(a) loan program to provide eligible businesses emergency loans.
18 Pub. L. No. 116-135, § 1102, 134 Stat. 281, 286-94 (2020) (codified at 15 U.S.C. § 636(a)). The
19 PPP established that the SBA would guarantee PPP loans “under the same terms, conditions, and
20 processes” as its regular Section 7(a) loans, but that the eligibility requirements were somewhat
21 relaxed so that more businesses could receive loans on an expedited timeline. 15 U.S.C
22 § 636(a)(36)(B). The affiliation rules, described above, were waived for NAICS code 72
23 businesses (Accommodations and Food Services) with not more than 500 employees. See 15
24 U.S.C. § 636(a)(36)(D)(iv)(I). The Court refers to the PPP’s carve-out of the affiliation rules for
25 accommodations and food services businesses as the “affiliation exception provision.”
26 The SBA Act authorized regular Section 7(a) loans to be made directly by the SBA or in
27 cooperation with lending banks. 15 U.S.C. § 636(a). The PPP “delegated authority by the [SBA]
28 Administrator” to lending banks “to make and approve covered loans” to eligible businesses,
5
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 6 of 71
1 guaranteed by the SBA. 15 U.S.C. § 636(a)(36)(F)(ii)(I). Most PPP loans were obtained through
2 lenders and guaranteed by the SBA, rather than obtained directly from the SBA. To ensure the
3 timely disbursement of PPP loans, the CARES Act authorized the SBA to exercise “emergency
4 rulemaking authority” and “issue regulations to carry out the” PPP loan administration “without
5 regard to the notice [and comment] requirements” within fifteen days of the enactment of the
6 CARES Act. 15 U.S.C. § 9012; Pharaohs GC, Inc. v. U.S. Small Bus. Admin., 990 F.3d 217, 224
7 (2d Cir. 2021).
8 In April 2020, the SBA issued Interim Final Rules (April 2020 IFR) establishing eligibility
9 and application requirements for PPP loans. 85 Fed. Reg. 20,812-15. In relevant part, these rules
10 established that a business would be eligible for a PPP loan if it had “500 or fewer employees
11 whose principal place of residence is in the United States, or are a business that operates in a
12 certain industry and meet the applicable SBA employee-based size standards for that industry,”
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13 and was a “small business concern as defined in section 3” of the SBA or a nonprofit that was
14 operating in February 2020. Id. The April 2020 IFR specified: “Businesses that are not eligible
15 for PPP loans are identified in 13 C.F.R. § 120.110 and described further in SBA’s Standard
Northern District of California
16 Operating Procedure … except that nonprofit organizations authorized under the Act are eligible.”
17 85 Fed. Reg. 20,812. The April 2020 IFR thus “incorporated longstanding restrictions on
18 eligibility for 7(a) loans,” including the prurient business exclusion at 13 C.F.R. 120.110(p), into
19 the PPP. Pharaohs, 990 F.3d at 224. The PPP launched on April 3, 2020, and expired on August
20 8, 2020. Loans obtained through the PPP as authorized by the CARES Act during this time are
21 referred to as first-draw loans.
22 The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (EAA)
23 (Consolidated Appropriations Act, 2021, Div. N, Title III, Pub. L. No. 116-260, 134 Stat. 1182,
24 1993-2052, largely codified at 15 U.S.C. § 636(a)(37)), reauthorized the PPP and extended it
25 through March 2021. The EAA authorized the SBA to issue a second round of loans under the
26 PPP to eligible businesses. Additional loans were made available to businesses of not more than
27 300 employees that met certain income requirements and were otherwise eligible for loans under
28 15 U.S.C. § 636(a)(36). Explicitly prohibited from eligibility for second-draw loans was:
6
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 7 of 71
1 [A]ny entity that is a type of business concern (or would be, if such
entity were a business concern) described in section 120.110 of title
2 13, Code of Federal Regulations (or in any successor regulation or
other related guidance or rule that may be issued by
3 the Administrator) other than a business concern described in
subsection (a) [non-profits] or (k) [reserved] of such section.
4
5 15 U.S.C. § 636(a)(37)(A)(iv)(III) (the “Incorporating Statute”). Through the EAA, Congress
6 expressly incorporated the eligibility standards of 13 C.F.R. § 120.110, which includes the
7 prurient business exclusion. Loans issued under the EAA are referred to as second-draw loans.
8 1. Loan Forgiveness
9 Section 1106 of the CARES Act, codified at 15 U.S.C. § 636m, governs forgiveness for
10 first- and second-draw PPP loans. “An eligible recipient shall be eligible for forgiveness of
11 indebtedness on a covered loan in an amount equal to” the amount of the PPP loan used for
12 authorized purposes, including payments towards rent, payroll, and utilities, as long as at least
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13 sixty percent of the PPP loan went towards payroll costs. 15 U.S.C. § 636m(b), (d)(8). Loan
14 recipients could apply for forgiveness by submitting an application, including documentation
15 verifying the number of employees, payroll tax filings, proof of payment of rent, utilities, and
Northern District of California
16 other covered expenditures, and “any other documentation the [SBA] determines necessary,” to its
17 lender. 15 U.S.C. § 636m(e). The lender would then issue its decision to the SBA, and, if the
18 lender forgave the loan in whole or in part, the SBA would remit the forgiven amount to the
19 lender, subject to the SBA’s own review. Id. § 636m(c), (g); 85 Fed. Reg. 38,306. “If SBA
20 determines in the course of its review that the borrower was ineligible for the PPP loan based on
21 the provisions of the CARES Act, SBA rules or guidance available at the time of the borrower’s
22 PPP loan application, or the terms of the borrower’s PPP loan application (for example, because
23 the borrower lacked an adequate basis for the certification that it made in its PPP loan application),
24 the loan will not be eligible for loan forgiveness.” 85 Fed. Reg. 38,306.
25 Once a PPP borrower has applied for loan forgiveness, repayment of the principal loan
26 amount and interest thereon is deferred until the SBA remits the forgiven amount to the lender or
27 determines that the loan is not eligible for forgiveness. 15 U.S.C. § 636(a)(36)(M)(ii)
28 (establishing that the SBA Administrator must “provide complete payment deferment relief for
7
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 8 of 71
1 impacted borrowers with covered loans … until the date on which the amount of forgiveness
2 determined under section 363m of this title is remitted to the lender”); see 86 Fed. Reg. 8283,
3 8288.
4 2. The Special OHA Appeals Process
5 The SBA established procedures to rule on applications for PPP loan forgiveness and for
6 businesses to administratively appeal such decisions. If the SBA, upon reviewing a PPP loan,
7 found that the borrower was ineligible for the loan, used the PPP loan for unauthorized purposes,
8 or was ineligible for PPP loan forgiveness, the SBA could issue a final loan review decision
9 (FLRD) denying loan forgiveness. 13 C.F.R. § 134.1201(b).
10 The borrower could then administratively appeal the decision to SBA’s Office of Hearings
11 and Appeals (OHA). 13 C.F.R. § 134.1201(c). Appeals must be filed within thirty days of the
12 borrower receiving the FLRD and must include a copy of the FLRD, a statement of why the
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13 FLRD is “alleged to be erroneous,” and any relevant exhibits and attachments. Id. §§ 134.1202,
14 134.1204(a). The SBA must then lodge the administrative record, and the borrower has an
15 opportunity to object to the administrative record. Id. § 134.1207. The SBA may file a response
Northern District of California
16 to the borrower’s appeal. Id.§ 134.1208(a). “Generally, a reply to a response is not permitted”
17 unless the ALJ directs otherwise upon the borrower’s request. Id. § 134.1208(e). All appeals of
18 FLRDs are “decided solely on a review of the administrative record, the appeal petition, any
19 response, any reply or supplemental pleading, and filings related to objection to the administrative
20 record” and neither “discovery nor oral hearings” are permitted. Id. § 134.1209. The borrower
21 has the burden of proof to show that the FLRD “was based on clear error of fact or law.” Id.
22 § 134.1210. This procedure for administratively appealing FLRDs (the Special OHA Rules) is
23 more streamlined than the OHA’s process for reviewing administrative appeals of non-PPP
24 Section 7(a) loans.
25 For administrative appeals, the ALJ’s decision regarding a challenged FLRD must be
26 issued within forty-five days after close of the record, as practicable, and contain “findings of fact
27 and conclusions of law, the reasons for such findings and conclusions, and any relief ordered.” Id.
28 §134.1211. The ALJ’s decision becomes final after thirty days, and final decisions “may be
8
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1 appealed to the appropriate Federal district court.” Id. § 134.1211(g). “An appeal to OHA is an
2 administrative remedy that must be exhausted before judicial review of a final SBA loan review
3 decision may be sought in a Federal district court.” Id. § 134.1201(d). A timely appeal of an
4 FLRD “extends the deferment period of the PPP loan until a final decision is issued.” Id.
5 § 134.1202(d).
6 Plaintiffs allege that the Special OHA Rules governing administrative appeals of FLRDs
7 lack due process. Among other things, Plaintiffs complain that the special OHA rules require
8 appellants to file their opening briefs before receiving the administrative record (which documents
9 the SBA’s reasoning for issuing FLRDs) and appellants are generally not permitted to submit
10 additional briefing regarding the merits of their appeal after they have received the administrative
11 record. FAC ¶¶ 424, 428. Appellants may file objections to the administrative record, but only
12 have ten days to do so, which, Plaintiffs allege, is insufficient given that the administrative record
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13 for any FLRD can be thousands of pages long. Id. ¶ 426. Portions of the administrative records
14 are redacted, which, Plaintiffs allege, render it “impossible for them to file full and substantive
15 objections” to the administrative record or ascertain why their loan forgiveness applications were
Northern District of California
16 rejected. Id. ¶ 429. The special OHA rules do not permit appellants to obtain discovery from the
17 SBA during the administrative appeals process. See 13 C.F.R. § 134.1209(b), FAC ¶ 410. OHA
18 summarily grants the SBA’s motions to dismiss Plaintiffs’ appeals without permitting Plaintiffs to
19 oppose the motions. See, e.g., FAC ¶¶ 83, 128. The OHA decision-makers are not necessarily
20 ALJs who work within the SBA and instead may be ALJs borrowed “from other federal agencies”
21 or outside attorneys. Id. ¶ 405.
22 C. Plaintiffs’ Loans
23 As alleged in the FAC, together, Plaintiffs applied for and received twenty-four PPP loans.
24 Five Plaintiffs only received first-draw loans, one Plaintiff (Pole Position) only received a second-
25 draw loan, and the remaining Plaintiffs received both. All Plaintiffs applied to have their loans
26 forgiven. Plaintiffs’ lenders determined the loans should be forgiven and, upon review, the SBA
27 initially approved some applications but denied others. The status of Plaintiffs’ loans, according
28 to their complaint, is as follows:
9
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1. Gold Club
1
Gold Club applied for and received first- and second-draw PPP loans. FAC ¶¶ 66, 70-71.
2
Gold Club applied for forgiveness of its first-draw loan in November 2021, and, in October 2023,
3
the SBA issued an FLRD denying the application because it had determined that Gold Club was
4
1) ineligible as a prurient business, and 2) along with its affiliate businesses, too large to qualify
5
for PPP loans. Id. ¶ 73. Gold Club appealed the FLRD to the OHA and filed a discovery motion.
6
The OHA summarily dismissed the discovery motion, stating that its authority was limited to
7
reviewing whether an FLRD was based on clear error. Id. ¶¶ 76, 78. The SBA then filed a 5,967-
8
page administrative record, and, the day before Gold Club’s objections to the administrative
9
record were due, the SBA filed a motion to dismiss Gold Club’s appeal on the grounds that it had
10
withdrawn the underlying FLRD. Id. ¶¶ 79, 82. The OHA granted the SBA’s motion and
11
dismissed the appeal before Gold Club had the opportunity to respond. Id. ¶¶ 82-83.
12
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Gold Club applied for forgiveness of its second-draw loan in April 2022. Id. ¶ 84. The
13
SBA issued an FLRD as to the second-draw loan in October 2023, again on the basis that Gold
14
Club was 1) ineligible as a prurient business, and 2) along with its affiliate businesses, too large to
15
qualify for PPP loans. FAC ¶ 85. Gold Club appealed to the OHA and filed a motion for
Northern District of California
16
discovery, which was summarily denied. Id. ¶¶ 86-87. The SBA then filed a voluminous
17
administrative record, which Gold Club began reviewing and preparing objections to. Before
18
Gold Club filed its objections, the SBA filed a motion to dismiss the appeal on the basis that it had
19
withdrawn the underlying FLRD. Id. ¶ 89. The OHA again granted the SBA’s motion to dismiss
20
the appeal before Gold Club could respond. Id. ¶¶ 91-92.
21
After Gold Club’s appeal challenging the first FLRD as to Gold Club’s second-draw loan
22
was dismissed, the SBA issued a second FLRD as to Gold Club’s second-draw loan, this time
23
denying Gold Club’s application for forgiveness of its second-draw loan only because Gold Club
24
was ineligible as a prurient business. Id. ¶ 93. Gold Club appealed, the SBA filed the
25
administrative record, and Gold Club filed its objections to the record. Id. ¶ 98. Gold Club filed a
26
discovery motion, which was again summarily denied by the OHA. Id. ¶¶ 99-100. The SBA then
27
responded to Gold Club’s appeal, relying on exhibits that had not been included in the
28
10
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1 administrative record; Gold Club moved to strike these exhibits. Id. ¶¶ 101-104. Less than a
2 week after the SBA filed its response, the OHA affirmed the FLRD and denied as moot Gold
3 Club’s motion to strike. Id. ¶ 105. Per 13 C.F.R. § 134.1211, the OHA’s affirmance became final
4 and ripe for judicial review thirty days after it was issued. Id. ¶ 108. Gold Club has begun making
5 repayments on its second-draw loan. Id. ¶ 110.
6 2. Dallas Food and Beverage
7 Plaintiff Dallas applied for and received a first-draw PPP loan and proceeded to apply for
8 loan forgiveness in July 2021. Id. ¶¶ 118-19. Dallas received forgiveness for the full amount in
9 April 2022, but, in January 2024, received a letter from the SBA initiating a “Post-Payment
10 Review” of its first-draw loan and requesting additional documents. Id. ¶ 121. The stated reasons
11 for initiating the review was to assess whether Dallas was eligible for PPP loans under the prurient
12 business exclusion and the affiliation rules. Id.
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13 Dallas also applied for and received a second-draw loan. Id. ¶ 125. It applied for loan
14 forgiveness in May 2022, and the SBA issued an FLRD as to the second-draw loan in December
15 2023 on the basis that Dallas was 1) ineligible as a prurient business, and 2) along with its affiliate
Northern District of California
16 businesses, too large to qualify for PPP loans. Id. ¶ 128. Dallas appealed the FLRD to the OHA,
17 SBA filed a motion to dismiss the appeal after withdrawing the “applicable FLRD,” and the OHA
18 granted the motion to dismiss. Id. ¶¶ 128, 345.
19 3. Meacham
20 Plaintiff Meacham applied for, received, and obtained forgiveness of a first-draw PPP loan.
21 Id. ¶ 135. Meacham also applied for and received a second-draw loan. Id. It applied for
22 forgiveness of its second-draw loan in April 2022, and, in June 2023, the SBA issued an FLRD
23 denying the application because Meacham was 1) ineligible as a prurient business, and 2) along
24 with its affiliate businesses, too large to qualify for PPP loans. Id. ¶ 141. Meacham appealed and
25 the SBA moved to dismiss the appeal on the grounds that it had withdrawn the FLRD. Id. ¶ 144.
26 The OHA granted the SBA’s motion to dismiss the appeal. Id. ¶ 145.
27 After the first FLRD was withdrawn, the SBA issued Meacham a second FLRD as to its
28 second-draw loan solely on the ground that Meacham was ineligible because it was a prurient
11
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1 business. Id. ¶ 146. Meacham appealed, the SBA filed a lengthy administrative record (which
2 included an entry indicating that the SBA considered Google Maps results to determine that
3 Meacham was a prurient business), and Meacham filed a discovery motion and objections to the
4 administrative record. Id. ¶¶ 149-52. The OHA sustained Meacham’s objections. The SBA filed
5 its response to Meacham’s appeal, which included exhibits not in the administrative record. Id.
6 ¶ 154-57. The OHA granted Meacham’s appeal in May 2024, finding that it “was without a firm
7 conviction that [the] SBA’s FLRD” was “free from clear error,” and remanded the second FLRD
8 to the SBA. Id. ¶ 158.
9 4. Reeder
10 Plaintiff Reeder applied for and received first- and second-draw PPP loans. Id. ¶¶ 165-66.
11 It applied for and received full forgiveness of both loans in 2021. Id. ¶¶ 170, 172. In January
12 2023, the SBA informed Reeder that the SBA would be initiating a Post-Payment Review of both
United States District Court
13 loans and requested that Reeder submit additional documentation to the SBA. Id. ¶ 173. The
14 SBA’s stated purpose for conducting the review was to determine if Reeder was eligible for PPP
15 loans under the prurient business exclusion and affiliation rules. Id.
Northern District of California
16 5. S.A.W.
17 Plaintiff S.A.W. applied for and received a first-draw PPP loan. Id. ¶¶ 181, 184. It applied
18 for loan forgiveness and the SBA issued an FLRD denying the application on the basis that
19 S.A.W., along with its affiliates, was too large to receive the loan. Id. ¶ 187. S.A.W. appealed the
20 FLRD to the OHA and filed a discovery motion, which the SBA summarily denied. Id. ¶¶ 188-90.
21 The SBA lodged the administrative record, and, eight days later, filed a motion to dismiss
22 S.A.W.’s appeal because it had withdrawn the underlying FLRD as it had “determined that it was
23 necessary to complete a further review of the Loan.” Id. ¶¶ 191, 193. The OHA granted the
24 SBA’s motion to dismiss. Id. ¶¶ 191-94.
25 About three weeks after SBA withdrew the first FLRD, it issued a second one, this time
26 denying S.A.W.’s forgiveness application on the basis that S.A.W. was a prurient business. Id.
27 ¶ 195. S.A.W. appealed to the OHA and the SBA filed a motion to dismiss, stating that the appeal
28 was moot as it had withdrawn the second FLRD. Id. ¶ 197-98. The OHA dismissed S.A.W.’s
12
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 13 of 71
1 appeal, and, when S.A.W. filed for reconsideration of the dismissal, denied the request for
2 reconsideration. Id. ¶ 201.
3 6. Smithville
4 Plaintiff Smithville applied for and received first- and second-draw PPP loans. Id. ¶¶ 210,
5 212. Smithville obtained partial loan forgiveness of its first-draw loan pursuant to a settlement
6 agreement with the SBA. Id. ¶ 210. Smithville applied for forgiveness of its second-draw loan,
7 and the SBA issued an FLRD denying the application because Smithville, along with its
8 associates, was too large to qualify for PPP loans in December 2023, and because it was a prurient
9 business. Id. ¶ 215. Smithville appealed the FLRD and, at the time the FAC was filed, the appeal
10 was still pending. Id.
11 7. Deja Vu
12 Similarly to Smithville, Plaintiff Deja Vu applied for and received first-and second-draw
United States District Court
13 PPP loans. Id. ¶¶ 222, 224. Deja Vu applied for and received partial loan forgiveness of its first-
14 draw loan pursuant to a settlement agreement with the SBA. Id. ¶ 224. It applied for forgiveness
15 of its second-draw loan in July 2022, and in December 2023 the SBA issued an FLRD denying its
Northern District of California
16 application on the basis that Deja Vu was too large to qualify for PPP loans and was a prurient
17 business. Id. ¶ 229. Deja Vu appealed the FLRD, and the appeal is pending. Id.
18 8. Office
19 Plaintiff Office applied for and received a first-draw PPP loan, and then applied for and
20 received loan forgiveness. Id. ¶¶ 235, 238-39. In January 2024, the SBA sent Office a letter
21 stating it was initiating Post-Payment Review to assess if Office was eligible for PPP loans under
22 the prurient business exclusion and affiliation rules. Id. ¶ 240. Office is a bar and grill and does
23 not present adult entertainment. Id. ¶¶ 231-32.
24 9. Cats’ Meow
25 Plaintiff Cats’ Meow is a karaoke bar and nightclub. Id. ¶ 242. It applied for and received
26 first- and second-draw PPP loans. Id. ¶¶ 246, 248. It applied for and received forgiveness for
27 both loans in 2021, but, after it received loan forgiveness, the SBA conducted a “review” of both
28 loans to determine if it was too large to qualify for PPP loans under the affiliation rules and to
13
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 14 of 71
1 review if it had submitted adequate documentation and lost sufficient income to qualify for PPP
2 loans. Id. ¶¶ 255-56.
3 10. Cats NOLA
4 Plaintiff Cats NOLA is a karaoke bar and nightclub. Id. ¶ 258. It applied for and received
5 a first-draw PPP loan, and, in September 2021, its first-draw loan was forgiven. Id. ¶ 267. In
6 January 2024, the SBA emailed Cats NOLA that it was initiating a Post-Payment Review and
7 requested that Cats NOLA submit additional documents. Id. ¶¶ 269-70. The SBA did not give a
8 reason for initiating this review. Id.
9 11. Pole Position
10 Plaintiff Pole Position was a sports bar that, name notwithstanding, allegedly did not
11 present any form of live entertainment. Id. ¶¶ 272, 607. It applied for and received a second-draw
12 PPP loan, and then applied for and received loan forgiveness. Id. ¶¶ 276, 281-82. In December
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13 2023, the SBA emailed Pole Position informing it that the SBA was conducting a review of the
14 loan it received and requesting that Pole Position send the SBA various documents. Id. ¶ 283.
15 Pole Position closed in March 2023. Id. ¶ 272.
Northern District of California
16 12. Jamme
17 Plaintiff Jamme applied for and received first- and second-draw PPP loans. Id. ¶¶ 291-92.
18 It applied for forgiveness of its first-draw loan in July 2021. Id. ¶ 295. The application was
19 granted, but, in January 2024, the SBA informed Jamme that it was initiating a Post-Payment
20 Review and requested additional documents. Id. ¶ 297. The SBA stated that the purpose of the
21 review was to assess if Jamme was eligible for PPP loans under the prurient business exclusion
22 and affiliation rules. Id.
23 Jamme applied for forgiveness of its second-draw loan in May 2022. Id. ¶ 298. As of the
24 filing of the filing of the First Amended Complaint, SBA had not issued a decision on the
25 application. Id. ¶ 299.4
26
4
27 In violation of Civil Local Rule 7-3(d), Plaintiffs filed supplementary material informing the
Court that the SBA had issued an FLRD denying Jamme’s application for forgiveness of its
28 second-draw PP loan based on a potential “affiliation issue.” ECF No. 42 at 2. Their
supplemental filing is stricken.
14
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13. 90s
1
Plaintiff 90s applied for and received first- and second-draw PPP loans. Id. ¶¶ 307-08. It
2
applied for forgiveness of its first-draw loan in July 2021, and the loan was forgiven. Id. ¶ 312. In
3
January 2024, the SBA notified 90s that it was conducting a Post-Payment Review to assess if 90s
4
was eligible for PPP loans based on the prurient business exception and affiliation rules. Id. ¶ 313.
5
The SBA requested that 90s send in additional documents. Id.
6
90s applied for and received full forgiveness of its second-draw loan. Id. ¶¶ 314-15. 90s
7
has not been subject to a Post-Payment Review of its second-draw loan.
8
14. Bistro and Stockton
9
Plaintiffs Bistro and Stockton both applied for and received first-draw loans. FAC ¶¶ 323,
10
335. Both of their loans were forgiven in July 2021 (id. ¶¶ 327, 339), but, in January 2024, the
11
SBA notified them that it was initiating Post-Payment Reviews to determine if Bistro and
12
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Stockton were eligible for PPP loans under the prurient business exclusion and affiliation rules.
13
Id. ¶¶ 328, 340.
14
***
15
In sum, fourteen of the twenty-four loans were forgiven in their entirety. Of those
Northern District of California
16
fourteen, the SBA has initiated Post-Payment Review of twelve loans; two have not been subject
17
to Post-Payment Review. Two loans were partially forgiven pursuant to settlements with the
18
SBA. At the time of the filing of the FAC, the SBA had not made an initial determination on one
19
forgiveness application (for Jamme’s second-draw loan). Seven applications for forgiveness were
20
denied via the issuance of FLRDs, and Plaintiffs administratively appealed all seven denials to the
21
OHA. Of those seven, the FLRDs for four applications were withdrawn after Plaintiffs appealed,
22
two appeals are still pending with the OHA, and one application (for forgiveness of Gold Club’s
23
second-draw loan) was denied initially and upon appeal to the OHA.
24
Plaintiffs allege that Defendants believe that all Plaintiffs, except Meacham and Reeder,
25
are affiliated with two individuals, Harry and Jason Mohney (the Mohneys). FAC ¶¶ 604, 651.
26
They claim that the SBA, and in particular SBA’s Associate General Counsel Eric Benderson,
27
whom “Plaintiffs understand and believe” to be “the person at the SBA who makes final loan and
28
15
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 16 of 71
1 forgiveness determinations when application of the Prurience Regulation is involved,” has a
2 particular “distain” for the Mohneys and their associated businesses. Id. ¶¶ 523, 607. Plaintiffs
3 allege that while the SBA “has forgiven PPP loans for numerous ‘adult’ businesses” not associated
4 with the Mohneys, the SBA has subjected businesses that the SBA believes are “affiliated with the
5 Mohneys [to] additional scrutiny … and has been looking for ways to deny Plaintiffs … pandemic
6 aid funding, … to claw back any pandemic aid funding the Plaintiffs received, or to simply run up
7 the entities[’] costs associated with loan forgiveness.” Id. ¶¶ 616, 655. Other adult entertainment
8 businesses connected to the Mohneys previously sued the SBA in the Eastern District of
9 Michigan, in DV Diamond Club of Flint v. SBA, No. 20-cv-10899 (E.D. Mich.) (Diamond Club
10 Action), challenging the prurient business exclusion. FAC ¶¶ 487, 651.
11 D. Plaintiffs’ Theories of Liability and Their Exhibits to the FAC
12 Plaintiffs assert eighteen claims against Defendants. Counts One through Four challenge
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13 the validity and constitutionality of the prurient business exclusion. Id. ¶¶ 627-49. At Count Five,
14 Plaintiffs claim that Defendants are retaliating against them for exercising their First Amendment
15 rights. Id. ¶¶ 650-60. Counts Six through Eleven challenge the validity and constitutionality of
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16 the affiliation rules and the application of the affiliation exception provision. Id. ¶¶ 661-96.
17 Counts Twelve and Thirteen challenge the Special OHA Rules governing the process for
18 administratively appealing FLRDs. Id. ¶¶ 694-704. At Count Fourteen, Plaintiffs claim that
19 Defendants are estopped from denying Plaintiffs’ loan forgiveness applications. Id. ¶¶ 705-15.
20 Count Fifteen requests attorneys’ fees and costs. Id. ¶¶ 716-19. Count Sixteen challenges the
21 constitutionality of the portion of the SBA Act at 15 U.S.C. § 634(b)(1) (the injunction provision)
22 that, Plaintiffs claim, prohibits injunctions from being issued against the SBA. Id. ¶¶ 720-26. At
23 Count Seventeen, Plaintiffs request judicial review of the OHA’s order denying Gold Club’s
24 application for forgiveness of its second draw loan and of the underlying FLRD. Id. ¶¶ 727-35.
25 Count Eighteen requests injunctive relief against the SBA. Id. ¶¶ 736-45.
26 Plaintiffs attached voluminous exhibits to their 745-paragraph FAC. Federal Rule of Civil
27 Procedure 8(a)(2) requires complaints to contain “a short and plain statement of the claim showing
28 that the pleader is entitled to relief.” Rule 10(c) provides that “[a] copy of a written instrument
16
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 17 of 71
1 that is an exhibit to a pleading is a part of the pleading for all purposes.” Plaintiffs apparently took
2 Rule 10(c) as permission to circumvent the “short and plain statement” requirement of Rule 8.
3 They have attached fifty-eight exhibits, totaling over 7,000 pages, to the FAC. Their exhibits
4 include, among other things, correspondence between the SBA and Plaintiffs’ lending banks,
5 different iterations of the SBA’s standard operating procedures, FLRDs issued by the SBA,
6 excerpts of administrative records, Plaintiffs’ appeals and discovery briefs to the OHA, emails
7 between Plaintiffs’ counsel and the SBA, and transcripts of hearings in related cases.
8 Including such voluminous exhibits to the complaint is unnecessary and unhelpful. First,
9 the scale of the exhibits makes it “unnecessarily difficult for Defendants to decipher the scope of
10 the allegations underlying each claim.” United States v. Erie Cnty., 724 F. Supp. 2d 357, 367
11 (W.D.N.Y. 2010); see Harris v. Newsom, No. CV 19-04904, 2020 WL 7084548, at *2 (C.D. Cal.
12 Sept. 22, 2020) (finding that a complaint that contained “183 paragraphs and incorporates
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13 hundreds of pages of exhibits by reference” was “unreasonably difficult” for the court to review
14 and dismissing it with leave to file an amended complaint that “contains a short and plain
15 statement”). Second, at this stage in the proceeding, the Court takes Plaintiffs’ allegations in the
Northern District of California
16 FAC as true; Plaintiffs’ apparent attempt to prove up their allegations via exhibits adds nothing.5
17 Third, Plaintiffs may not use their exhibits to avoid their obligation to provide a “short and plain”
18 statement of their claims, as required by Rule 8. Plaintiffs carry the “burden of presenting the
19 facts of [their] case in a ‘short and plain’ manner.” Cantu v. Garcia, No. 09-cv-00177, 2010 WL
20 2605336, at *2 (E.D. Cal. June 28, 2010) (quoting Fed. R. Civ. P. 8(a)). “[S]ifting through”
21 thousands of pages of documents to find factual support for Plaintiffs’ claims “crosses the line
22 between liberal construction and advocating on Plaintiff[s’] behalf.” Id.
23
24
5
For example, Plaintiffs allege that the SBA “filed a 458-page administrative record” in February
2024 as part of Plaintiff Meacham’s appeal of an FLRD, excerpts of which are attached to their
25 FAC as Exhibit L. FAC ¶ 146. Quoting from the administrative record, Plaintiffs allege that SBA
employees noted that Meacham was a “‘Gentlemen’s Club,’ which [was] confirmed through open-
26 source searches,” and an “ineligible business” based on “a visual search of Google” that
“determined these businesses to be adult entertainment clubs, or of a prurient nature.” Id. ¶ 150.
27 The attachment that confirms the quote, ECF No. 18-1 at 1854-55, is immaterial because at the
motion to dismiss stage, the Court must accept Plaintiffs’ allegations in the FAC about these
28 comments as true.
17
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1 The Court takes the factual allegations of the FAC as true, and, where the FAC references
2 a specific factual allegation contained in an exhibit or the existence of a document attached as an
3 exhibit, the Court takes such allegations (or the existence of such a document) as true as well. The
4 Court will not, at this stage of the proceeding, sift through the thousands of unidentified pages not
5 referenced in the FAC to try to ferret out if factual allegations supporting Plaintiffs’ claims are
6 buried somewhere in the haystack.6 See United States v. U.S. Telecom Long Distance, Inc., No.
7 17-cv-02917, 2018 WL 4566673, at *2 (D. Nev. Sept. 24, 2018) (explaining that attaching
8 voluminous exhibits, comprised of filings in an underlying administrative action, did “not excuse
9 the [plaintiff] of its obligation under Rule 8(a) to provide a short and plaint statement of its
10 claims”).7
11 E. Defendants’ Motion to Dismiss Plaintiffs’ First Amended Complaint and to
Strike Jury Demand
12
United States District Court
In support of their motion to dismiss, Defendants assert that many of Plaintiffs claims are
13
not suitable for judicial review under Article III or the APA, and challenge the sufficiency of
14
Plaintiffs’ allegations in support of their claims. More specifically, Defendants argue that the
15
majority of Plaintiffs’ claims are not yet ripe. They contend that Plaintiffs’ claims related to the
Northern District of California
16
affiliation rules and affiliation exception provision (Counts Five to Eleven) are not yet ripe
17
because “no Plaintiff is the subject of a final decision denying loan forgiveness based” on the
18
19
20
6
One illustration of this is Plaintiffs’ Exhibit AA, which is a 1,724-page discovery motion. ECF
No. 18-2 at 136-1861. Plaintiffs apparently filed Exhibit AA to provide the Court with an
21 example of the discovery motions they have been filing in the OHA appeals. See FAC ¶ 431. Of
the 1,724 pages, Plaintiffs cite to a single paragraph to support their allegation that they informed
22 the OHA that their due process rights were being violated. See id. ¶ 434. It is not clear what the
purpose of the other 1,723 pages is. It is Plaintiffs’ duty under Rule 8 to crystalize their
23 allegations into a “short and plain” statement; they may not circumvent this obligation by
appending such an exhibit to their FAC and expecting the Court to discern which facts, within this
24 thousand-plus page document, support their claims.
7
For related reasons, the Court DENIES Plaintiffs’ administrative motion to file supplemental
25 materials. ECF No. 35. That motion, filed three days before the hearing on the motion to dismiss,
requests that the Court allow the filing of two letters from Bank of America regarding repayment
26 of Gold Club and S.A.W.’s first draw loans. However, allowing the filing of such material would
compound the problem posed by Plaintiffs’ voluminous attachments. The request for relief is not
27 styled as a Rule 15(d) motion, and thus, is not favored. See Keith v. Volpe, 858 F.2d 467, 472 (9th
Cir. 1988). In any event, Plaintiffs still have the option to include in a Second Amended
28 Complaint factual allegations pertaining to these letters, which were sent by the bank after briefing
on the motion to dismiss.
18
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 19 of 71
1 affiliation rules, and Plaintiffs will not suffer any cognizable hardship from delaying judicial
2 review “until there is a final agency action.” ECF No. 28 at 14, 28-31. Of those claims,
3 Defendants assert that Counts Seven, Eight, Ten, and Eleven, do not challenge final agency action
4 and are thus not reviewable under the APA. Id. at 32-33. At the hearing on the motion to dismiss,
5 Defendants’ counsel raised for the first time an argument that Plaintiffs did not have standing to
6 bring the affiliation claims. Defendants next argue that Plaintiffs’ as-applied constitutional
7 challenges to the prurient business exclusion (Counts One and Two), Plaintiffs’ challenges to the
8 SBA’s administrative appeals process (Counts Twelve and Thirteen), and Plaintiffs’ estoppel
9 claim (Count Fourteen), are only ripe as to Plaintiff Gold Club, and that Plaintiffs’ challenges to
10 the regulatory prurient business exclusion (part of Count Three and Count Four) and the
11 constitutionality of the SBA Act’s injunction provision (Count Sixteen) are not yet ripe. Id. at 14-
12 15.
United States District Court
13 Turning to Plaintiffs’ challenges to the prurient business exclusion (Counts One and Two),
14 Defendants argue that Plaintiffs failed to state a cause of action for a First or Fifth Amendment
15 violation, as the prurient business exclusion is not a government restriction on speech but rather a
Northern District of California
16 permissible limit on a government subsidy. Id. at 36-38
17 Lastly, Defendants argue that Plaintiffs’ requests for attorneys’ fees and injunctive relief
18 must be dismissed as these are not stand-alone causes of action, and that their jury demand must
19 be stricken as they are not entitled to a trial by jury under the APA. Id. at 50-51.
20 F. Plaintiffs’ Post-Hearing Filings
21 Plaintiffs filed a “Notice of Supplemental Authority” at ECF No. 42 and a “Reply in
22 Support of Plaintiffs’ Notice of Supplemental Authority … and Notice of Additional
23 Supplemental Authority” at ECF No. 44, both of which appear to allege additional facts regarding
24 the state of Plaintiffs Jamme, S.A.W., and Gold Club’s loans and forgiveness applications. These
25 filings are stricken, as they were filed without leave of the Court in violation of Civil Local Rule
26 7-3(c). Defendants’ Response at ECF No. 43 is also stricken. Should they choose to do so,
27 Plaintiffs may include allegations regarding recent factual developments in their Second Amended
28 complaint.
19
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1 Accordingly, in ruling on the instant motion to dismiss, the Court considers the allegations
2 in the FAC and disregards those allegations raised for the first time in Plaintiffs’ administrative
3 motion or supplemental filings. This is without prejudice to Plaintiffs including their additional
4 factual allegations in their Second Amended Complaint.
5 II. LEGAL STANDARD
6 Defendants move to dismiss many of Plaintiffs’ claims for lack of subject-matter
7 jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim upon
8 which relief can be granted under Federal Rule Civil Procedure 12(b)(6).
9 A. Rule 12(b)(1) Legal Standard
10 Rule 12(b)(1) permits a defendant to move to dismiss a complaint due to “lack of subject-
11 matter jurisdiction.” “Subject-matter jurisdiction … refers to a tribunal’s power to hear a case.”
12 Union Pac. R. Co. v. Bhd. of Locomotive Eng’rs & Trainmen Gen. Comm. of Adjustment, Cent.
United States District Court
13 Region, 558 U.S. 67, 81 (2009) (quotation marks omitted). A case must satisfy statutory and
14 constitutional requirements for a federal court to have subject matter jurisdiction over it. See
15 Leeson v. Transamerica Disability Income Plan, 671 F.3d 969, 975 (9th Cir. 2012). “[S]ubject-
Northern District of California
16 matter jurisdiction, because it involves a court’s power to hear a case, can never be forfeited or
17 waived.” United States v. Cotton, 535 U.S. 625, 630 (2002).
18 For a case to satisfy the statutory requirements of subject-matter jurisdiction, it must,
19 generally speaking, either arise “under the Constitution, laws, or treaties of the United States,” or
20 the amount in controversy must exceed $75,000 and be between citizens of different states. 28
21 U.S.C. §§ 1331, 1332(a). For a case to satisfy the Article III constitutional requirements of
22 subject-matter jurisdiction, the matter must be a “live case[] or controvers[y],” and courts may not
23 “issue advisory opinions [or] declare rights in hypothetical cases.” Thomas v. Anchorage Equal
24 Rts. Comm’n, 220 F.3d 1134, 1138 (9th Cir. 2000). The constitutional “case or controversy
25 requirement limits federal courts’ subject matter jurisdiction by requiring, inter alia, that plaintiffs
26 have standing and that claims be ‘ripe’ for adjudication.” Chandler v. State Farm Mut. Auto. Ins.
27 Co., 598 F.3d 1115, 1121 (9th Cir. 2010). “Standing addresses whether the plaintiff is the proper
28 party to bring the matter to the court for adjudication,” whereas ripeness addresses whether a
20
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 21 of 71
1 plaintiff’s claim is “premature for review.” Id. at 1122. “Because standing and ripeness pertain to
2 federal courts’ subject matter jurisdiction, they are properly raised in a Rule 12(b)(1) motion to
3 dismiss.” Id.
4 “The ripeness doctrine is designed to ‘separate matters that are premature for review
5 because the injury is speculative and may never occur from those cases that are appropriate for
6 federal court action.’” Thomas v. Cnty. of Humboldt, 124 F.4th 1179, 1187 (9th Cir. 2024)
7 (quoting Portman v. Cnty. of Santa Clara, 995 F.2d 898, 902 (9th Cir. 1993)). Under that
8 doctrine, “ripeness[] is drawn both from Article III limitations on judicial power and from
9 prudential reasons for refusing to exercise jurisdiction.” Id. (internal quotation omitted). “The
10 constitutional component of the ripeness inquiry is often treated under the rubric of standing,”
11 coinciding with standing’s injury-in-fact prong, whereas the prudential component of ripeness
12 considers “the fitness of the issues for judicial decision and the hardship to the parties of
United States District Court
13 withholding court consideration.” Id. (internal quotation marks omitted).
14 The party asserting federal subject matter jurisdiction bears the burden of proving its
15 existence. Chandler, 598 F.3d at 1122. When ruling on a Rule 12(b)(1) motion to dismiss that
Northern District of California
16 present a facial challenge, courts must “accept as true all material allegations in the complaint, and
17 must construe the complaint in the nonmovant’s favor.” Id.; cf. San Diego Cnty. Credit Union v.
18 Citizens Equity First Credit Union, 65 F.4th 1012, 1028 (9th Cir. 2023) (addressing factual
19 challenges under Ruler 12(b)(1)). When a claim is dismissed under Rule 12(b)(1) because judicial
20 review is premature, dismissal should be without prejudice to the plaintiff reasserting their claims
21 once they have ripened. See Ass’n of Am. Med. Colleges v. United States, 217 F.3d 770, 785 (9th
22 Cir. 2000).
23 B. Rule 12(b)(6) Legal Standard
24 Rule 12(b)(6) of the Federal Rules of Civil Procedure provides that complaints may be
25 dismissed where they fail “to state a claim upon which relief can be granted.” Dismissal under
26 Rule 12(b)(6) may be “based on the lack of a cognizable legal theory or the absence of sufficient
27 facts alleged under a cognizable legal theory.” Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201,
28 1208 (9th Cir. 2019) (citation and internal quotation marks omitted). A complaint generally must
21
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 22 of 71
1 include a “short and plain statement of the claim showing that the pleader is entitled to relief.”
2 Fed. R. Civ. P. 8(a)(2).
3 A court reviewing a 12(b)(6) motion must “accept all factual allegations in the complaint
4 as true and construe the pleadings in the light most favorable to the nonmoving party.” Outdoor
5 Media Group, Inc. v. City of Beaumont, 506 F.3d 895, 900 (9th Cir. 2007). “Threadbare recitals
6 of the elements of a cause of action . . . do not suffice,” however, and a court need not credit “legal
7 conclusions” or “mere conclusory statements.” Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).
8 The allegations in the complaint “must be enough to raise a right to relief above the speculative
9 level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint must demonstrate
10 “facial plausibility” by pleading “factual content that allows the court to draw the reasonable
11 inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.
12 A court’s review under Rule 12(b)(6) is generally limited to the contents of a complaint,
United States District Court
13 with the exception of materials incorporated by reference in a complaint or materials subject to
14 judicial notice. See Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018). A
15 court should not consider facts first alleged in a plaintiff’s opposition papers, although such new
Northern District of California
16 facts may be considered when deciding whether to dismiss with or without prejudice. See Orion
17 Tire Corp. v. Goodyear Tire & Rubber Co., Inc., 268 F.3d 1133, 1137-38 (9th Cir. 2001).
18 Courts generally do not dismiss a complaint with prejudice under Rule 12(b)(6) unless it is
19 clear the complaint cannot be saved by amendment. See United States v. Corinthian Colls., 655
20 F.3d 984, 995 (9th Cir. 2011). “[L]eave to amend ‘shall be freely given when justice so
21 requires.’” Leadsinger, Inc. v. BMG Music Publ’g, 512 F.3d 522, 532 (9th Cir. 2008) (quoting
22 Fed. R. Civ. P. 15(a)). Generally, leave to amend may be denied only if allowing the amendment
23 would unduly prejudice the opposing party, cause undue delay, or be futile, or if a plaintiff has
24 acted in bad faith. Id.
25 III. ARTICLE III STANDING
26 At the hearing on the motion to dismiss, Defendants raised for the first time that Plaintiffs
27 lack standing to challenge the affiliation rules. The parties submitted supplemental briefing
28 following the hearing. ECF Nos. 40, 41.
22
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1 The court’s “role is neither to issue advisory opinions nor to declare rights in hypothetical
2 cases, but to adjudicate live cases or controversies consistent with the powers granted the judiciary
3 in Article III of the Constitution.” Thomas, 220 F.3d at 1138. “The doctrine of standing
4 implements this requirement by insisting that a litigant ‘prove that he has suffered a concrete and
5 particularized injury that is fairly traceable to the challenged conduct, and is likely to be redressed
6 by a favorable judicial decision.’” Carney v. Adams, 592 U.S. 53, 58 (2020) (quoting
7 Hollingsworth v. Perry, 570 U.S. 693, 704 (2013)). A party “invoking federal jurisdiction” must
8 establish these three elements to demonstrate they have standing, although, at the pleading stage,
9 “general factual allegations of injury resulting from the defendant’s conduct may suffice.” Lujan
10 v. Defenders of Wildlife, 504 U.S. 555, 561 (1992); Chandler, 598 F.3d at 1122 (holding that the
11 plaintiff’s factual allegations were insufficient to establish an injury that is “fairly traceable to
12 Defendant’s conduct”). “First, the plaintiff must prove that he suffered an ‘injury in fact,’ i.e., ‘an
United States District Court
13 invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or
14 imminent, not conjectural or hypothetical.’ Second, the plaintiff must establish a causal
15 connection by proving that her injury is fairly traceable to the challenged conduct of the defendant.
Northern District of California
16 Third, the plaintiff must show that her injury will likely be redressed by a favorable decision.”
17 Chandler, 598 F.3d at 1122 (citations omitted) (quoting Lujan, 504 U.S. at 560-61); Prutehi
18 Litekyan: Save Ritidian v. U.S. Dep’t of Airforce, 128 F.4th 1089, 1105 (9th Cir. 2025) (explaining
19 that the three constitutional standing requirements must be met where plaintiffs challenge
20 administrative action).
21 The first element—injury-in-fact—is contested here. Such an injury must be “real and not
22 abstract[,]… must ‘affect the plaintiff in a personal and individual way’” rather than be a
23 generalized grievance, and must “have already occurred or be likely to occur soon.” FDA v. All.
24 for Hippocratic Med., 602 U.S. 367, 381 (2024) (quoting Lujan, 504 U.S. at 560 n.1). A “credible
25 threat” of future harm that is “both real and immediate” may satisfy the injury-in-fact requirement.
26 Krottner v. Starbucks Corp., 628 F.3d 1139, 1143 (9th Cir. 2010) (quotation marks omitted).
27 Defendants contend that Plaintiffs lack standing to challenge the affiliation rules because
28 the SBA has not “made a final determination that any [P]laintiff is ineligible” for loan forgiveness
23
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1 under the affiliation rules, and thus any injury based on the application of the affiliation rules is
2 “conjectural [and] hypothetical” rather than “actual or imminent.” ECF No. 40 at 3 (citing
3 Carney, 592 U.S. at 58). Plaintiffs respond that, even though there has not yet been a “final
4 determination” of ineligibility based on the affiliation rules, they have still suffered actual or will
5 suffer imminent injuries due to the affiliation rules. ECF No. 41 at 6. They argue that being
6 subjected to the SBA’s Post-Payment Review procedures, which require each Plaintiff subject to
7 such review to submit voluminous documentation regarding their business affiliations, constitutes
8 an injury-in-fact. See id. at 3-6. They also contend that the two Plaintiffs (Smithville and Deja
9 Vu) who have had FLRDs issued against them based on the affiliation rules and have pending
10 administrative appeals have suffered injuries-in fact. Id. at 4.
11 The Court agrees with Plaintiffs that they have standing to challenge the affiliation rules.
12 All Plaintiffs received PPP loans and then applied for PPP loan forgiveness, and all except Cats
United States District Court
13 NOLA and Pole Position8 have been subject to some manner of review based on the affiliation
14 rules. At the time the FAC was filed, the SBA was conducting Post-Payment Reviews of several
15 Plaintiffs’ loans based on the affiliation rules. See FAC ¶¶ 7-8, 121, 173, 240, 297, 313, 328, 340.
Northern District of California
16 As the SBA may retroactively deny loan forgiveness and require these Plaintiffs to begin
17 repayment as a result of its review, these Plaintiffs face an “imminent” risk that they will
18 experience a “concrete and particularized” injury. Friends of the Earth, Inc. v. Laidlaw Env’t
19 Servs. (TOC), Inc., 528 U.S. 167, 180 (2000); see Lujan, 504 U.S. at 560.
20 Furthermore, Plaintiffs Smithville and Deja Vu received FLRDs denying their applications
21 for loan forgiveness based, in part, on the affiliation rules, and have pending administrative
22 appeals. Id. ¶¶ 215, 229. Their applications for loan forgiveness were denied, and the OHA may
23 ultimately uphold the FLRDs, requiring Plaintiffs to repay their loans. These Plaintiffs have been
24 concretely harmed by the affiliation rules and further harm may be imminent. Their objections to
25 the affiliation rules are more than “impermissible generalized grievance[s].” Lujan, 504 U.S. at
26 575 (quotation marks omitted). In addition, as part of the Post-Payment Review process, certain
27
28
8
The SBA has initiated Post-Payment Review of Cats NOLA and Pole Positions’ forgiveness
applications, but did not provide a reason for initiating these reviews. FAC ¶¶ 269-70, 283.
24
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 25 of 71
1 Plaintiffs were required to submit voluminous records regarding their business affiliates. Plaintiffs
2 who were “compelled to…provide documents [they] would prefer to withhold” as part of the
3 SBA’s review suffered a “concrete injury.” Seila Law LLC v. Consumer Fin. Prot. Bureau, 591
4 U.S. 197, 211 (2020); see FAC ¶ 4. As at least one Plaintiff has “standing to bring the suit, the
5 court need not consider the standing of” all plaintiffs. Laub v. U.S. Dep’t of the Interior, 341 F.3d
6 1080, 1086 (9th Cir. 2003); see Dir., Off. of Workers’ Comp. Programs, U.S. Dep’t of Lab. v.
7 Perini N. River Assocs., 459 U.S. 297, 305 (1983) (holding that the presence of at least one party
8 with standing is sufficient to show that “an admittedly justiciable controversy is” before the court).
9 With respect to the other elements required to demonstrate Article III standing, the Court
10 further holds that Plaintiffs’ alleged injury is traceable to the affiliation rules and that a favorable
11 decision would redress their injuries. “To establish traceability, there must be a causal connection
12 between the injury and the conduct complained of—the injury has to be fairly traceable to the
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13 challenged action of the defendant, and not the result of the independent action of some third party
14 not before the court.” Prutehi Litekyan, 128 F.4th at 1106 (quotation marks omitted). The
15 Plaintiffs who received and are appealing FLRDs and are undergoing Post-Payment Reviews
Northern District of California
16 based on the affiliation rules may be denied loan forgiveness because of the affiliation rules and
17 the SBA’s application of the affiliation exception provision. Their injuries are thus directly
18 traceable to the SBA’s challenged actions. See id. Similarly, a judicial determination that the
19 affiliation rules are unlawful or that the SBA is incorrectly applying the affiliation exception
20 provision would “reduce or eliminate” Plaintiffs’ risk of injury from the affiliation rules.
21 California v. Bernhardt, 460 F. Supp. 3d 875, 889 (N.D. Cal. 2020).
22 The Court accordingly finds that Plaintiffs have standing to challenge the affiliation rules.
23 IV. PRUDENTIAL RIPENESS
24 Defendants argue that many of Plaintiffs’ claims are not yet prudentially ripe for judicial
25 review. ECF No. 28 at 27. “Ripeness is a justiciability doctrine designed ‘to prevent the courts,
26 through avoidance of premature adjudication, from entangling themselves in abstract
27 disagreements over administrative policies, and also to protect the agencies from judicial
28 interference until an administrative decision has been formalized and its effects felt in a concrete
25
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 26 of 71
1 way by the challenging parties.’” Nat’l Park Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803, 807-
2 08 (2003) (quoting Abbott Laboratories v. Gardner, 387 U.S. 136, 148-49 (1967)). As discussed
3 above, a dispute may be unripe either in the “constitutional” sense or in the “prudential” sense.
4 Thomas, 124 F.4th at 1187.
5 Plaintiffs urge the court to “disregard the entirety” of Defendants’ motion to dismiss
6 brought on prudential ripeness grounds, claiming that the Supreme Court abolished the prudential
7 ripeness doctrine in Susan B. Anthony List v. Driehaus, 573 U.S. 149, 167 (2014). ECF No. 32 at
8 21. Although “[p]rudential ripeness is discretionary,” the Ninth Circuit has unequivocally held
9 that Susan B. Anthony List “stopped short of abrogating the doctrine,” and continues to exercise
10 prudential ripeness and direct district courts to do the same. Seattle Pac. Univ. v. Ferguson, 104
11 F.4th 50, 65-66 (9th Cir. 2024); see Stavrianoudakis v. United States Fish & Wildlife Serv., 108
12 F.4th 1128, 1139 (9th Cir. 2024). The Court accordingly evaluates Defendants’ arguments that
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13 many of Plaintiffs claims are not yet prudentially ripe.
14 In evaluating prudential ripeness, courts assess “(1) the fitness of the issues for judicial
15 decision and (2) the hardship to the parties of withholding court consideration.” Nat’l Park Hosp.
Northern District of California
16 Ass’n, 538 U.S. at 808; Thomas, 220 F.3d at 1141. “A question is fit for decision when it can be
17 decided without considering ‘contingent future events that may or may not occur as anticipated, or
18 indeed may not occur at all.’” Addington v. U.S. Airline Pilots Ass’n, 606 F.3d 1174, 1179 (9th
19 Cir. 2010) (quoting Cardenas v. Anzai, 311 F.3d 929, 934 (9th Cir. 2002)). To determine if a
20 challenge to an agency action is fit for review, courts evaluate “if the issues raised are primarily
21 legal, do not require further factual development, and the challenged action is final.” US West
22 Commc’ns v. MFS Intelenet, Inc., 193 F.3d 1112, 1118 (1999) (quotations marks omitted). “The
23 core question” in evaluating if a claim is fit for review “is whether the agency has completed its
24 decisionmaking process, and whether the result of that process is one that will directly affect the
25 parties.” American Medical, 217 F.3d at 780 (quoting Franklin v. Massachusetts, 505 U.S. 788,
26 797 (1992)). Courts consider “whether the administrative action is a definitive statement of an
27 agency’s position; whether the action has a direct and immediate effect on the complaining parties;
28 whether the action has the status of law; and whether the action requires immediate compliance
26
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1 with its terms.” Id. Judicial intervention into agency proceedings is premature “where pending
2 administrative proceedings or further agency action might render the case moot and judicial
3 review completely unnecessary.” Sierra Club v. U.S. Nuclear Regul. Comm’n, 825 F.2d 1356,
4 1362 (9th Cir. 1987).
5 “To meet the hardship requirement, a litigant must show that withholding review would
6 result in ‘direct and immediate’ hardship and would entail more than possible financial loss.”
7 Winter v. Cal. Med. Review, Inc., 900 F.2d 1322, 1325 (9th Cir. 1989) (quoting State of Cal.,
8 Dep’t of Educ. v. Bennett, 833 F.2d 827, 833 (9th Cir. 1987)). “Hardship in this context does not
9 mean just anything that makes life harder; it means hardship of a legal kind, or something that
10 imposes a significant practical harm upon the plaintiff.” Colwell v. Dep’t of Health & Hum.
11 Servs., 558 F.3d 1112, 1128 (9th Cir. 2009) (quotation marks omitted). In the context of
12 challenging agency action, courts consider if “the [challenged] regulation requires an immediate
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13 and significant change in the plaintiffs’ conduct of their affairs with serious penalties attached to
14 noncompliance.” American Medical, 217 F.3d at 783 (quotation marks omitted).
15 A. Ripeness of Claims Challenging the Affiliation Rules
Northern District of California
16 Plaintiffs’ Counts Six through Eleven challenge the SBA’s affiliation rules and affiliation
17 exception provision facially and as applied to Plaintiffs.9 Defendants argue that these claims are
18 not yet prudentially ripe because, at the time the FAC was filed, “no Plaintiff [was] subject to a
19 final decision denying loan forgiveness based on the application of SBA’s affiliation rules and
20 Plaintiffs will suffer no cognizable hardship from delayed review.” ECF No. 28 at 27. The Court
21 addresses whether Plaintiffs’ facial and as-applied claims are fit for judicial decision and the
22 hardship to Plaintiffs if judicial review is delayed, as follows.
23 1. Facial Challenges to the Affiliation Rules
24 The Court first considers whether Plaintiffs’ facial challenges to the affiliation rules are fit
25 for review. At Count Nine, Plaintiffs claim that the affiliations rules violate the Fifth Amendment
26 “on their face and particularly as applied by the SBA to Plaintiffs.” FAC ¶ 679. At Count Eleven,
27
28
9
Plaintiffs’ Count Five alleges that the SBA is applying the affiliation rules to retaliate against
Plaintiffs for excising their free speech rights. The ripeness of this claim is addressed separately.
27
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 28 of 71
1 Plaintiffs claim that the affiliation rules are otherwise invalid both facially and “as applied by the
2 SBA and/or the Administrator.” Id. ¶¶ 690-91. To the extent Plaintiffs are mounting a facial
3 attack on the affiliation rules at Counts Nine and Eleven, their challenges are to rules that have
4 been finalized and promulgated. See 13 C.F.R. § 121.103. The rules are a “definitive statement”
5 of the SBA’s position and there are no pending administrative proceedings or further action by the
6 SBA that might render this challenge moot. American Medical, 217 F.3d at 780; see Abbott
7 Laboratories, 387 U.S. at 151 (holding that a promulgated regulation that was “made effective
8 upon publication” was “quite clearly definitive” and thus a final agency action and fit for judicial
9 review); Sierra Club v. U.S. Nuclear, 825 F.2d at 1362. Waiting for the SBA to finally deny a
10 loan forgiveness application based on the affiliation rules will not make these “primarily legal”
11 claims “more ripe.” US West Commc’ns, 193 F.3d at 1118; Action for Children’s Television v.
12 F.C.C., 59 F.3d 1249, 1258 (D.C. Cir. 1995). The Court accordingly finds that Plaintiffs’ facial
United States District Court
13 challenges at Counts Nine and Eleven are fit for judicial review.
14 As the Court holds that Plaintiffs’ facial challenges to the affiliation rules are fit for review,
15 it does not evaluate the potential hardship to Plaintiffs if judicial review were delayed.
Northern District of California
16 2. As-Applied Challenges to the Affiliation Rules
17 As noted above, Plaintiffs also challenge how the SBA has applied the affiliation rules and
18 failed to apply affiliation exception provision. The ripeness of these particular claims is a different
19 matter from the facial challenges. Accordingly, the Court evaluates the fitness of these claims for
20 review and the hardship that may ensue if the Court does not review them now.
21 a. Fitness for Review of As-Applied Challenges to the Affiliation
Rules and Affiliation Exception Provision
22
With respect to fitness for review, Defendants explain, at the time the FAC was filed, no
23
Plaintiff’s loan forgiveness application had been denied initially via an FLRD and after review by
24
the OHA based on the affiliation provisions. See ECF No. 28 at 28-30. Defendants argue that
25
there has not yet been final agency action and judicial review is premature because no applications
26
have been denied finally based on the affiliation rules. The Court agrees.
27
Plaintiffs, collectively, received twenty-four PPP loans and have applied for forgiveness
28
28
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 29 of 71
1 for each loan. See FAC ¶¶ 70-71, 118, 125, 135, 138, 170, 172, 184, 210, 212, 226, 238, 250-51,
2 266, 276, 280, 295, 298, 312, 315, 327, 338. These twenty-four forgiveness applications are
3 addressed in turn.
4 The SBA has granted sixteen applications for loan forgiveness. Four of the loans that were
5 forgiven (two pursuant to settlement agreements) are not subject to any sort of Post-Payment
6 Review. Id. ¶¶ 135, 210, 224, 315. Twelve loans were initially forgiven but later subject to Post-
7 Payment Review, which required Plaintiffs to submit additional documentation to the SBA. Id. ¶¶
8 121, 173, 240, 256, 269, 283, 297, 313, 328, 340. None of the twelve loan forgiveness
9 applications subject to Post-Payment Review has been retroactively denied.
10 The Court finds that there has been no final agency action as to the sixteen loan
11 forgiveness applications that the SBA granted. Plaintiffs allege, among other things, that the SBA
12 applied and enforced the affiliation rules and affiliation exception provisions improperly to all
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13 Plaintiffs. But the SBA plainly did not use the affiliation rules as a basis to deny the four loan
14 forgiveness applications it granted and has not subjected to review. While the SBA has begun
15 auditing twelve applications pursuant to Post-Payment Reviews, “[a]n investigation, even one
Northern District of California
16 conducted with an eye to enforcement, is quintessentially non-final as a form of agency action.”
17 American Medical, 217 F.3d at 781. As in Association of American Medical Colleges, although
18 the Plaintiffs undergoing Post-Payment Reviews “are currently subject to concrete agency
19 action…the actions are not final and their outcomes turn on contingencies which the court is ill-
20 equipped to predict.” Id. at 782. Further agency action may render these Plaintiffs’ claims
21 “moot.” Id. That the SBA is in the process of auditing twelve of Plaintiffs’ forgiveness
22 applications is not a “definitive statement” of the SBA’s position with regard to these applications.
23 Id.; see Briggs v. San Diego Unified Port Dist., No. 24-CV-239, 2025 WL 254923, at *5 (S.D.
24 Cal. Jan. 21, 2025) (finding that defendant’s ongoing “investigation is not a definitive statement”
25 and “not final”).
26 As of the filing of the FAC, seven applications for loan forgiveness remain unresolved,
27 although the precise reasons vary to some extent because the applicants’ journey through the SBA
28 administrative process has differed. The SBA had not made an initial determination whether to
29
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 30 of 71
1 grant or deny Jamme’s application for forgiveness of its second-draw loan.10 Id. ¶ 299. The SBA
2 issued FLRDs for Smithville and Deja Vu’s second-draw loans, which both Plaintiffs have
3 challenged through the administrative appeals process; these administrative appeals are pending.
4 Id. ¶¶ 215, 229. The SBA issued an FLRD denying Gold Club’s application for forgiveness of its
5 first-draw loan based on the prurient business exception and affiliation rules, which Gold Club
6 appealed to the OHA. Id. ¶ 73. The OHA dismissed Gold Club’s appeal on February 27, 2024 on
7 the grounds that SBA had withdrawn the underlying FLRD. Id. ¶ 82. The SBA issued an FLRD
8 denying Dallas’s application for forgiveness of its second-draw loan based on the affiliation rules
9 and prurient business exclusion, which Dallas appealed. FAC ¶ 128. The SBA moved to dismiss
10 Dallas’s administrative appeal because the underlying FLRD had been withdrawn, which the OHA
11 granted. Id. ¶¶ 128, 345. The SBA issued an FLRD denying Meacham’s second-draw loan
12 forgiveness application, Meacham appealed, the SBA withdrew the underling FLRD, and the
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13 OHA dismissed Meacham’s administrative appeal. Id. ¶¶ 141-45. The SBA then issued a new
14 FLRD denying Meacham’s second-draw loan forgiveness application based on the prurient
15 business exception only, and Meacham again appealed. Id. ¶¶ 146-47. The OHA granted
Northern District of California
16 Meacham’s appeal, and the FLRD was remanded to the SBA. Id. ¶ 158. The SBA issued an
17 FLRD denying S.A.W.’s application for forgiveness of its first-draw loan, which S.A.W.
18 appealed. Id. ¶¶ 187-88. The SBA moved to dismiss the appeal because it had withdrawn the
19 underlying FLRD, and the OHA dismissed the appeal. Id. at 193-94. The SBA then issued
20 another FLRD, based solely on the prurient business exclusion; S.A.W. appealed, the SBA
21 withdrew the FLRD, and the appeal was dismissed. Id. ¶¶ 198-200.
22 For the four applications where the SBA has not made an initial determination, where the
23 appeal in front of the OHA is still pending, and where the OHA remanded a decision back to the
24 SBA for further consideration, “pending administrative proceedings or further agency action might
25
10
26 As noted above, Plaintiffs filed supplementary material informing the Court that the SBA had
issued an FLRD denying Jamme’s application for forgiveness of its second-draw PP loan based on
27 a potential “affiliation issue.” ECF No. 42 at 2. This filing was without leave of the Court in
violation of Civil Local Rule 7-3(d) and is accordingly stricken. As the claims regarding the
28 affiliation rules are being dismissed on ripeness grounds without prejudice, Plaintiffs may amend
their complaint to include claims that have ripened since the filing of the FAC.
30
Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 31 of 71
1 render the case moot and judicial review completely unnecessary.” Sierra Club v. U.S. Nuclear,
2 825 F.2d at 1362. There is, accordingly, no final agency action as to Jamme’s application for
3 forgiveness of its second-draw loan, Smithville and Deja Vu’s appeals to the OHA regarding
4 forgiveness of their second draw loan, and Meacham’s application for forgiveness of its second-
5 draw loan, which was remanded back to the SBA. FAC ¶¶ 158, 215, 229, 299.
6 This leaves the three loan forgiveness applications that are, per Plaintiffs’ allegations, in
7 limbo.11 The SBA issued FLRDs for Dallas’s application for forgiveness of its second-draw loan,
8 Gold Club’s application for forgiveness of its first-draw loan, and S.A.W.’s application for
9 forgiveness of its first-draw loan, because, among other reasons, the Plaintiffs’ businesses
10 exceeded the size limits of the affiliation rules. Id. ¶¶ 73, 128, 191-93. All three Plaintiffs
11 appealed the FLRDs to the OHA. The SBA then withdrew the underlying FLRDs and the OHA
12 dismissed the appeals as moot. The SBA issued a second FLRD denying S.A.W.’s application
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13 based only on the prurient business exception, which S.A.W. appealed to the OHA; again, the
14 SBA withdrew the underlying FLRD and the OHA dismissed the appeal as moot. FAC ¶¶ 198-
15 200. For all three applications, the SBA has not issued new FLRDs nor granted the applications
Northern District of California
16 for forgiveness. While the Court is sympathetic that waiting for the SBA to either issue new
17 FLRDs or approve the applications creates a great deal of financial uncertainty for the three
18 Plaintiffs, it finds that, in these cases, Plaintiffs have not alleged that there has been final agency
19 action. Although the SBA initially issued FLRDs based on the affiliation rules, it since withdrew
20 these FLRDs and has not reissued FLRDs based on the affiliation rules. There are no FLRDs
21 based on the affiliation rules in effect. The SBA’s decision on these applications is still pending,
22 and its decision to approve the applications or issue FLRDs not based on the affiliation rules could
23 “render the case moot and judicial review completely unnecessary.” Sierra Club v. U.S. Nuclear,
24 825 F.2d at 1362. Judicial review in such circumstances is improper.12
25
26
11
The twenty-fourth application, for forgiveness of Gold Club’s second-draw loan, has been
denied initially pursuant to an FLRD and on administrative appeal. But that denial was based on
27 the application of the prurient business exclusion, not the affiliation rules. See FAC ¶ 106.
12
28 Plaintiffs contend that this will create a never-ending cycle where the SBA issues FLRDs,
Plaintiffs appeal them to the OHA, the SBA withdraws the underlying FLRDs, the OHA dismisses
31
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1 Plaintiffs ask the Court to determine if the manner in which the SBA applied the affiliation
2 rules and affiliation exception provision is invalid. But, as explained above, the SBA has not
3 finally denied a forgiveness application by applying the affiliation rules or failing to apply the
4 affiliation exception provision. If, as may well be the case, the SBA does not finally deny any
5 forgiveness applications based on the affiliation rules, Plaintiffs’ claims would be moot. And if an
6 application for loan forgiveness is denied via an FLRD and then upheld after an administrative
7 appeal, the Court will be able to review the full record and determine if the SBA’s actions were
8 valid. Judicial review now, when the administrative process is still ongoing and the SBA may
9 never use the affiliation rules as a ground to ultimately deny loan forgiveness, is premature. The
10 Court accordingly concludes that Plaintiffs’ Counts Six through Eleven (with the exception of
11 Plaintiffs’ facial challenges to the affiliation rules at Counts Nine and Eleven, discussed above) are
12 not yet fit for judicial review.
United States District Court
13 b. Hardship if Review of As-Applied Challenges to the Affiliation
Rules and Affiliation Exception Provision is Delayed
14
Next, the Court considers the hardship to Plaintiffs if it declines to review their as-applied
15
challenge to the affiliation rules now. Plaintiffs argue that they will suffer “the ongoing harm of
Northern District of California
16
being subjected to unconstitutional Special OHA Rules, biased decision-makers, Defendants’
17
willful refusal to apply the Affiliation Exemption Provisions…and retaliatory enforcement based
18
on animus toward Plaintiffs’ protected expression” if the Court delays review of their claims
19
regarding the affiliation rules. ECF No. 32 at 37. They also explain that they will suffer
20
“economic damages in the form of exorbitant professional fees incurred as a result of 1) having to
21
comply with SBA’s incessant demands for more documentation … and 2) having to serially
22
appeal FLRDs, because SBA withdraws them on specious grounds to be replaced at a later date
23
with a new reason for denial, after having to have made payments on the loan.” Id. at 30.
24
The hardships Plaintiffs will experience if judicial review is delayed are thus primarily
25
26
27 the appeals as moot, and the SBA then issues new FLRDs on the same grounds. At this point,
such a claim is hypothetical: where the SBA withdrew an FLRD based on the affiliation rules, it
28 has so far issued new FLRDs based on other grounds, perhaps recognizing that, as Plaintiffs
argue, their businesses fall under the exception provision for NAICS 72 businesses.
32
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1 financial. They may have to keep paying their lawyers to appeal new FLRDs, advance their
2 existing appeals through the OHA process, and submit paperwork in response to the SBA’s post-
3 payment reviews, and may have to begin repaying their PPP loans. But “possible financial loss” is
4 not a cognizable hardship under the prudential ripeness doctrine. Winter, 900 F.2d at 1325. Nor is
5 the “expense and annoyance” of progressing through “allegedly unconstitutional administrative
6 proceedings.” Ticor Title Ins. Co. v. F.T.C., 814 F.2d 731, 752 (D.C. Cir. 1987) (citing F.T.C. v.
7 Standard Oil Co. of Cal., 449 U.S. 232, 244 (1980)). The Court recognizes that the uncertainty of
8 not knowing whether their loans will be forgiven may pose a hardship on Plaintiffs. See Cnty. of
9 Santa Clara v. Trump, 250 F. Supp. 3d 497, 530 (N.D. Cal. 2017) (“Without clarity [about
10 whether or not they would lose government funding] the Counties do not know whether they
11 should start slashing essential programs or continue to spend millions of dollars and risk a
12 financial crisis in the near future.”). Plaintiffs who are subject to Post-Payment Review or are
United States District Court
13 awaiting a final decision from the SBA do not know if they will have to begin repaying their
14 loans—some of which were for over a million dollars—or can continue with business as usual.
15 But this hardship does not overcome the underlying deficiency of Plaintiffs’ as-applied
Northern District of California
16 claims: they assert that the SBA has applied the affiliation rules (and failed to apply the affiliation
17 exception provision) improperly, but, as of yet, the SBA has not used the affiliation rules as a
18 basis to ultimately deny any Plaintiffs’ applications for loan forgiveness. When or if the SBA
19 finally denies an application for loan forgiveness based on the affiliation rules and in violation (per
20 Plaintiffs’ theory) of the affiliation exception provision, the Court will be able to assess if this
21 action was proper. Asking the Court to do so now is premature. The Court accordingly finds that
22 Counts Six through Eleven, except as to Plaintiffs’ facial challenges to the affiliation rules, are not
23 yet ripe for judicial review and are accordingly dismissed without prejudice. See American
24 Medical, 217 F.3d at 785 (holding that dismissal on ripeness grounds should be without prejudice
25 because, “[i]n the time since judgment was entered,” these claims may have ripened).
26 By the same reasoning, the Court finds that the non-Gold Club Plaintiffs’ claims that the
27 prurient business exclusion violates the First and Fifth Amendments, as applied, are not yet ripe.
28 The SBA has not taken final action in denying any of these Plaintiffs’ applications based on the
33
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1 prurient business exclusion. The as-applied challenges at Counts One and Two are dismissed
2 without prejudice as unripe for all Plaintiffs except Gold Club.
3 B. Ripeness of Retaliation Claim
4 Plaintiffs, at Count Five, allege that the SBA is applying the affiliation rules against them
5 in retaliation for presenting entertainment protected by the First Amendment and based on their
6 affiliation with the Mohneys, who backed the DV Diamond Club lawsuit against the SBA. FAC
7 ¶¶ 651-54. They claim that since “the DV Diamond Club action, the SBA, and in particular [SBA
8 Associate General Counsel] Benderson, has selected any business the SBA alleges to be an adult
9 entertainment business or to be affiliated with the Mohneys for additional scrutiny on any
10 pandemic related funding.” Id. ¶ 655. Such retaliation, they claim, violates the First Amendment.
11 Id.
12 The First Amendment “prohibits government officials from subjecting an individual to
United States District Court
13 retaliatory actions for engaging in protected speech.” Nieves v. Bartlett, 587 U.S. 391, 398 (2019)
14 (quoting Hartman v. Moore, 547 U.S. 250, 256 (2006)).. That is, a claimant may bring a First
15 Amendment retaliation claim against the government when the claimant exercises their First
Northern District of California
16 Amendment rights and then the government exercises an “ostensibly neutral power” against them
17 “in retaliation for the [exercise of their] First Amendment Rights.” Smolla & Nimmer on
18 Freedom of Speech § 3:14. “Claims that government officials subjected an individual to
19 retaliatory action are not limited to a particular context. They have been raised by government
20 employees, government contractors, students, prisoners, business licensees, and citizens targeted
21 by law enforcement for their political activities, among others.” Boquist v. Courtney, 32 F.4th
22 764, 774 (9th Cir. 2022). To state a claim for First Amendment retaliation, a claimant must plead
23 that:
24 (1) he engaged in constitutionally protected activity; (2) as a result,
he was subjected to adverse action by the defendant that would chill
25 a person of ordinary firmness from continuing to engage in the
protected activity; and (3) there was a substantial causal relationship
26 between the constitutionally protected activity and the adverse action.
27 Id. at 775; see Koala v. Kosla, 931 F.3d 887, 905 (9th Cir. 2019).
28 Plaintiffs allege that they engaged in constitutionally protected activity by presenting adult
34
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1 entertainment and by associating with businesses that sued the SBA in the DV Diamond Club
2 Action. FAC ¶¶ 653-54. Per Plaintiffs, the SBA took adverse action against Plaintiffs because of
3 their engagement in these protected activities, subjecting Plaintiffs to “additional scrutiny” and
4 “looking for ways to deny Plaintiffs…pandemic aid funding[,]…to claw back any pandemic aid
5 funding the Plaintiffs received, or to simply run up the entities[’] costs associated with obtaining
6 loan forgiveness.” Id. ¶ 655. Plaintiffs allege that one of the ways Defendants retaliated against
7 them was finding that “Plaintiffs were not entitled to PPP loan forgiveness based on SBA’s failure
8 to apply the Affiliation Exception Provisions to these Plaintiffs.” Id. ¶ 655(b).
9 As discussed above, as alleged in the FAC, although the SBA issued FLRDs to certain
10 Plaintiffs based on the affiliation rules, it has since withdrawn all of those FLRDs and has not yet
11 issued new ones based on the affiliation rules. To the extent that Plaintiffs claim that Defendants
12 retaliated against them by denying their loan forgiveness applications based on the affiliation rules
United States District Court
13 (and, by corollary, by not applying the affiliation exception provision), such claims are unripe as
14 Defendants have not yet done so. To the extent that Plaintiffs claim that Defendants retaliated
15 against them by subjecting them to “additional scrutiny” and “looking for ways to deny Plaintiffs”
Northern District of California
16 pandemic aid funding, these allegedly adverse actions are not “final” and “further factual
17 development” is required. Id. ¶ 655; US West Commc’ns, 193 F.3d at 1118. The Court is ill-
18 positioned to evaluate whether Defendants’ ongoing review of Plaintiffs’ loan applications is
19 retaliatory. And as discussed above, Plaintiffs have not alleged that they would suffer a
20 cognizable hardship if judicial review of their retaliation claim was delayed. Plaintiffs’ Count
21 Five is dismissed without prejudice.13
22 C. Ripeness of Special OHA Rules Claims
23 Plaintiffs allege that the Special OHA Rules violate the Fifth Amendment facially and as
24 applied to Plaintiffs (Count Twelve) and are invalid under the APA (Count Thirteen). FAC
25 ¶¶ 694-704. Among other things, these “Special OHA Rules” require appellants to file their
26
27 13
Defendants separately argue that Plaintiffs’ claim that Defendants are applying prurient business
28 exclusion against them in retaliation for exercising their First Amendment rights must be
dismissed under Rule 12(b)(6). ECF No. 28 at 45-46. This argument is discussed below.
35
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1 administrative appeal before the SBA has filed the administrative record, do not permit discovery
2 or oral hearings, provide limited time for appellants to review (typically voluminous)
3 administrative records, and permit ALJs outside of the SBA and attorneys who are not ALJs to
4 adjudicate administrative appeals. See FAC ¶¶ 404-410. Defendants argue that Plaintiffs’ claims
5 regarding the Special OHA Rules are not yet ripe as to the non-Gold Club Plaintiffs, as several of
6 these Plaintiffs have ongoing proceedings in front of the OHA. ECF No. 28 at 35-36.
7 Defendants’ argument is unavailing as to Plaintiffs’ facial challenges to the Special OHA
8 Rules. The Special OHA Rules, at 13 C.F.R. §§ 134.1201-1214, have been issued and are a
9 “definitive statement of” the SBA’s position. American Medical, 217 F.3d at 780. The Court’s
10 analysis of whether these rules, as promulgated, violate the procedural due process guarantees of
11 the Fifth Amendment or violate the APA does not depend on ongoing administrative action or
12 require further factual development. See US West Commc’ns, 193 F.3d at 1118. Defendants argue
United States District Court
13 that, as exactly what process is due “is a function of context,” Plaintiffs’ due process claim cannot
14 be considered “in the abstract.” Brewster v. Bd. of Educ. of Lynwood Unified Sch. Dist., 149 F.3d
15 971, 983 (9th Cir. 1998); ECF No. 28 at 35-36. While the flexible and context-specific nature of
Northern District of California
16 the due process analysis may make it difficult for Plaintiffs to prevail on their facial challenge to
17 the constitutionally of the Special OHA rules by showing that “no set of circumstances exists
18 under which” the OHA’s procedures “would be valid,” this does not render their facial challenge
19 unripe. William Jefferson & Co. v. Bd. of Assessment & Appeals No. 3 ex rel. Orange Cnty., 695
20 F.3d 960, 963 (9th Cir. 2012) (analyzing plaintiff’s facial procedural due process challenge). And
21 it has no bearing on the fitness for review of Plaintiffs’ claim that the Special OHA Rules are, as
22 written, invalid under the APA. The Court accordingly finds that Plaintiffs’ challenge to the facial
23 constitutionality of the Special OHA Rules at Counts Twelve and Thirteen are fit for review.14
24
14
25 At Count Thirteen, Plaintiffs claim that the Special OHA Rules:
a. Fail to serve any lawful or legitimate regulatory purpose for the
26 SBA or the Administrator as to first and second Draw PPP loans
or otherwise;
27 b. For the reasons set forth in the previous Count, they are contrary
to constitutional rights and privileges;
28 c. For the reasons set forth in the previous Count, they fail to provide
adequate procedure; and
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1 As to Plaintiffs’ claims that the special OHA rules, as applied, violate the APA and the
2 Fifth Amendment, the Court finds that Plaintiffs Dallas, Meacham, S.A.W., and Gold Club’s
3 claims15 are fit for judicial review. Dallas, Meacham, and S.A.W. received FLRDs, appealed their
4 FLDRs to the OHA, and the OHA either dismissed or remanded their administrative appeals.
5 While the SBA has not issued a final decision on their forgiveness applications, these Plaintiffs
6 have completed at least one round of the administrative appeals process. Whether or not the
7 process they underwent is constitutional or valid under the APA does not require further factual
8 development or depend on future contingent events. See Sierra Club v. U.S. Nuclear, 825 F.2d at
9 1362. As the Court has determined these claims are fit for review, it need not assess these
10 Plaintiffs’ argument regarding hardship. Pub. Serv. Elec. & Gas Co. v. FERC, 485 F.3d 1164,
11 1168 (D.C. Cir. 2007).
12 The remainder of the Plaintiffs’ as-applied claims regarding the Special OHA Rules are not
United States District Court
13 yet ripe. As alleged in the FAC, Plaintiffs Reeder, Office, Cats Meow, Cats NOLA, Pole Position,
14 Jamme, 90s, Bistro, and Stockton have not received FLRDs and thus have not yet had an occasion
15 to file administrative appeals with the OHA. It is premature for the Court to analyze how the
Northern District of California
16 Special OHA Rules will, or may, be applied to these Plaintiffs. See Thomas v. City of New York,
17 143 F.3d 31, 35 (2d Cir. 1998) (explaining that procedural due process claims are “best considered
18 in the context of a specific factual setting”). Plaintiffs Smithville and Deja Vu have received
19 FLRDs and are in the process of appealing these decisions to the OHA. While the Court could
20 weigh in now and address how the Special OHA Rules have been applied to Smithville and Deja
21 Vu thus far, given the ongoing nature of the administrative proceedings, the Court declines to do
22 so. See US West Commc’ns, 193 F.3d at 1118. These claims are accordingly not yet fit for
23
24 d. The SBA and/or the Administrator failed to make a sufficient
record, or to otherwise articulate a satisfactory explanation, as to
25 why the Special OHA Rules are a rational or reasonable response
to a problem that the agency was charge with solving…
26 FAC ¶ 701. The Court construes subparts (b) and (c) as reiterating Count Twelve’s claims that the
OHA Rules, as applied to Plaintiffs, violate the Fifth Amendment and finds these subparts not fit
27 for review except as to Gold Club, Dallas, Meacham, and S.A.W. This Count is otherwise fit for
review.
28
15
Defendants do not contend that Gold Club’s challenges to the Special OHA Rules are unripe.
ECF No. 18 at 35.
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1 review. As discussed above, the hardship these Plaintiffs will experience if judicial review is
2 delayed is primarily the “expense and annoyance” of progressing through “allegedly
3 unconstitutional administrative proceedings.” Ticor, 814 F.2d at 752. This is insufficient to
4 warrant judicial review now. The Court accordingly finds that Plaintiffs’ facial challenges to the
5 Special OHA Rules are ripe, as are Plaintiffs Dallas, Meacham, S.A.W., and Gold Club’s as-
6 applied challenges to the Special OHA Rules. Plaintiffs’ claims at Counts Twelve and Thirteen
7 are otherwise dismissed without prejudice on ripeness grounds.
8 D. Ripeness of Claim Challenging Injunction Provision
9 The SBA Act provides that the SBA Administrator may “sue and be sued in any court of
10 record of a State having general jurisdiction, or in any United States district court” in “the
11 performance of, and with respect to, the functions, powers, and duties vested in him by this
12 chapter,” except that “no attachment, injunction, garnishment, or other similar process, mesne or
United States District Court
13 final, shall be issued against the [SBA] Administrator or his property.” 15 U.S.C. § 634(b).
14 Plaintiffs claim that the provision of Section 634(b)(1) prohibiting injunctions (the “Injunction
15 Provision”) is unconstitutional. FAC ¶¶ 720-26. Specifically, Plaintiffs contend that interpreting
Northern District of California
16 the Injunction Provision as “an absolute bar to the issuance of any injunction” would violate the
17 First and Fifth Amendments. Id. ¶ 723. As Plaintiffs recognize, “the majority of courts have held
18 that the Injunction Provision does not operate as an absolute bar to the issuance of injunctive relief
19 against the SBA.” Id. ¶ 722. Although the Ninth Circuit has not addressed whether the Injunction
20 Provision is a complete bar, district courts within the Circuit have held that it is not. See Alaska
21 Urological Inst., P.C. v. U.S. Small Bus. Admin., 619 B.R. 689, 700 (D. Alaska 2020) (“The Court
22 adopts the view that § 634(b)(1) does not shield the SBA from injunctive relief where the agency
23 has exceeded its agency authority,”); Dubrow v. Small Business Administration, 345 F. Supp. 4, 7
24 (C.D. Cal. 1972) (“It should be clear, however, that when the Administrator acts beyond the scope
25 of his authority 15 U.S.C. § 634(b) does not preclude injunctive action.”); Wells v. Pilkerton, No.
26 19-cv-00407, 2020 WL 13179549, at *6 (D. Nev. Mar. 19, 2020) (same).
27 Defendants argue that Plaintiffs’ “challenge to § 634(b)(1) is not ripe, because ‘the
28 existence of the dispute itself hangs on future contingencies that may or may not occur.’” ECF
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1 No. 28 at 49 (quoting Clinton v. Acequia, Inc., 94 F.3d 568, 572 (9th Cir. 1996)). That is,
2 Plaintiffs do not “face a realistic danger of sustaining a direct injury as a result of the statute’s
3 operation or enforcement.” Thomas, 220 F.3d at 1139 (quotation marks omitted).
4 Courts “may only ‘pass upon the constitutionality of acts of Congress ... when the interests
5 of litigants require the use of this judicial authority for their protection against actual
6 interference.’” City & Cnty. of San Francisco v. Garland, 42 F.4th 1078, 1086 (9th Cir. 2022)
7 (quoting United Pub. Workers of Am. v. Mitchell, 330 U.S. 75, 89-90 (1947)). “[T]he mere
8 ‘existence of a law’ absent any threat of interference is not sufficient for ripeness. Nor does the
9 possibility of some future unconstitutional application of [a law] entitle Plaintiffs to dispositive
10 judgments on the provision’s constitutionality.” Id. at 1086-87 (citations omitted) (quoting
11 Mitchell, 330 U.S. at 91).
12 Plaintiffs claim that, as “a direct and proximate result of the unconstitutional nature of the
United States District Court
13 Injunction Provision, [they]…have suffered, and/or will suffer, and/or will continue to suffer
14 irreparable injuries including but not limited to financial collapse, business ruination, and/or the
15 inability to present, view, and/or engage in First Amendment-protected speech, expression, and
Northern District of California
16 entertainment.” FAC ¶ 724. But Plaintiffs do not allege that they have been denied an injunction
17 on the basis of the Injunction Provision. Their injury is, at this point, entirely hypothetical. For
18 the provision to harm them, Plaintiffs would have to file a motion for injunctive relief or prevail in
19 this action. The Court would have to find their request for injunctive relief otherwise appropriate,
20 but that it was barred from granting such relief because of the Injunction Provision. Because
21 Plaintiffs’ “future injury [is] purely conjectural” at this time, their challenge to the Injunction
22 Provision is not yet ripe. Clinton v. City of New York, 524 U.S. 417, 431 n.16 (1998). This claim
23 is accordingly dismissed without prejudice.
24 E. Ripeness of Estoppel Claims
25 At Count Fourteen, Plaintiffs assert an estoppel cause of action against Defendants. FAC
26 ¶¶ 705-15. They allege that the SBA represented that if PPP borrowers, including Plaintiffs,
27 “retained their employees” and used loan proceeds for permitted purposes, such as payroll costs,
28 rent, and utilities, their loans would be forgiven. FAC ¶ 706. Plaintiffs allege that, relying on
39
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1 these representations, they obtained PPP loans and used their loans for the permitted purposes. Id.
2 ¶¶ 706-14. Defendants argue that only Gold Club’s estoppel claim is ripe, as no other Plaintiff has
3 received a final determination that they were not eligible for PPP loans or had their forgiveness
4 application denied. ECF No. 28 at 36.
5 An estoppel claim against the government “must show both (1) ‘affirmative misconduct’
6 on the part of the government and (2) that ‘the government’s wrongful act will cause a serious
7 injustice, and the public’s interest will not suffer undue damage.’” Indus. Customers of Nw.
8 Utilities v. Bonneville Power Admin., 767 F.3d 912, 928 (9th Cir. 2014) (quoting United States v.
9 Hatcher, 922 F.2d 1402, 1409 n.12 (9th Cir. 1991)). Plaintiffs claim that the SBA engaged in
10 affirmative misconduct by representing that PPP loans would be forgiven if the loans were used
11 for proper purposes and concealing that loans would not be forgiven if the SBA later determined
12 that borrowers were ineligible. See FAC ¶¶ 706, 710-11. Defendants contend that because
United States District Court
13 Plaintiffs’ alleged “serious injustice”—denial of the loan forgiveness applications—has not yet
14 occurred (and, indeed, may never occur), the non-Gold Club Plaintiffs claims are not yet ripe. See
15 ECF No. 28 at 36. The Court agrees. Whether the Plaintiffs other than Gold Club will suffer “a
Northern District of California
16 serious injustice” by having their loan forgiveness applications denied depends on whether the
17 SBA will ultimately deny their applications. It is premature for the Court to hear this claim, as the
18 predicate act—the SBA denying the non-Gold Club Plaintiffs’ forgiveness applications—has not
19 yet occurred. This claim is accordingly not yet fit for review. As discussed in the context of the
20 ripeness of the affiliation claims, while the uncertainty regarding the status of their applications
21 poses a cognizable hardship, it is not enough for the Court to review Plaintiffs’ inchoate estoppel
22 claims. The Court finds that only Gold Club’s estoppel claim is ripe. All others are dismissed
23 without prejudice.
24 F. Ripeness of Prurient Business Exclusion Claims
25 As discussed above, the prurient business exclusion at 13 C.F.R. § 120.110(p) (which
26 Plaintiffs refer to as the “Prurience Regulation”), provides that businesses that “[p]resent live
27 performances of a prurient sexual nature” or “[d]erive … more than de minimis gross revenue
28 through the sale of products or services, or the presentation of any depictions or displays, of a
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1 prurient sexual nature” are ineligible for Section 7(a) loans. See FAC ¶ 464. The SBA applied the
2 prurient business exclusion to first-draw PPP loans. See 85 Fed. Reg. 20,812 (“Businesses that are
3 not eligible for PPP loans are identified in 13 C.F.R. 120.110 and described further in SBA’s
4 Standard Operating Procedure…except that nonprofit organizations authorized under the Act are
5 eligible.”). The prurient business exclusion applied to second-draw PPP loans through the
6 Incorporating Statute. See 15 U.S.C. § 636(a)(37)(A)(iv)(III) (establishing that “any entity that is
7 a type or business concern (or would be, if such entity were a business concern) described in
8 section 120.110 of title 13 Code of Federal Regulations…other than a business concern described
9 in subsection (a) [nonprofits] or (k) [reserved] of such section” were not eligible for second-draw
10 loans).
11 At Count Three, Plaintiffs claim that the SBA’s interpretation of the “Prurience
12 Regulation” and the “Incorporating Statute” are invalid and that the SBA’s “defining of ‘prurient’
United States District Court
13 as ‘lustful,’ ‘lascivious,’ an ‘overt strong sexual interest,’ ‘erotic’ and/or ‘arousing of strong sexual
14 interest or desire’ under the Prurience Regulation is not a legitimate exercise of the SBA’s or its
15 Administrator’s authority.” FAC ¶ 641. Plaintiffs further claim that, as applied by the SBA, the
Northern District of California
16 “Prurience Regulation and the Incorporating Statute are inconsistent with the SBA Act, as well as
17 the broad form of relief provided by the CARES Act and the Appropriations Act.” Id. ¶ 642. At
18 Count Four, Plaintiffs claim that the “Prurience Regulation” is otherwise “not a legitimate or
19 lawful exercise of the SBA’s…authority as applied to first and second draw PPP loans.” Id. ¶ 646.
20 Defendants argue that the part of Count Three regarding the regulatory invalidity of the
21 prurient business exclusion and the entirety of Count Four should be dismissed on ripeness
22 grounds because the SBA has not yet made “a final determination denying any Plaintiff [loan]
23 forgiveness based on the application of the prurient business exclusion to first-draw loans.” ECF
24 No. 28 at 35. They contend that these claims are not ripe because “[w]hether or not SBA validly
25 promulgated and incorporated the prurient business exclusion into the first-draw program is
26 immaterial to the validity of Congress’s decision to do so for the second-draw program.” Id.
27 But the Court does not read Plaintiffs’ Count Three as challenging whether the “SBA
28 validly incorporated the prurient business exclusion into the first-draw loan program.” Id.
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1 Instead, Plaintiffs challenge how the word “prurient” is defined under the Prurience Regulation at
2 13 C.F.R. 120.110(p) and claim that 13 C.F.R. 120.110(p) is not a legitimate exercise of the
3 SBA’s authority as applied to the first- and second-draw PPP loans. FAC ¶¶ 641-42, 646-47. 13
4 C.F.R. § 120.110(p), is a “definitive statement” of the SBA’s position that certain businesses are
5 not eligible for Section 7(a) loans and is the end result of the SBA’s decision-making process.
6 American Medical, 217 F.3d at 780. To the extent Count Three is challenging the overall validity
7 of 13 C.F.R. § 120.110(p), this claim is fit for review. Similarly, Gold Club’s claim that the
8 SBA’s definition of “prurient” is not lawful is fit for review, as the SBA has finally denied Gold
9 Club’s application for forgiveness based on its interpretation of 13 C.F.R. § 120.110(p). At Count
10 Four, Plaintiffs contend that 13 C.F.R. § 120.110(p) “is not a legitimate or lawful exercise of the
11 SBA’s or the Administrator’s authority as applied to first and second draw loans, and is otherwise
12 invalid under the [APA].” FAC ¶ 646. If Plaintiffs are contending that the fact that the SBA
United States District Court
13 incorporated the eligibility provisions at 13 C.F.R. § 120.110(p) into first-draw loans was
14 illegitimate and unlawful, this claim is fit for review. The April 2020 IFR, which applied the
15 prurient business exclusion to first-draw loans, is a definitive statement of the SBA’s position. 85
Northern District of California
16 Fed. Reg. 20,812. However, to the extent that Plaintiffs allege that the SBA has “used” 13 C.F.R.
17 § 120.110(p) to engage in unreasoned decision-making or deny Plaintiffs’ forgiveness
18 applications, only Gold Club’s claim is ripe. FAC ¶¶ 646-47. As with the affiliation claims, there
19 is no final action where a Plaintiff’s application is undergoing post-payment review, where an
20 administrative appeal is pending, or where the SBA has not issued an FLRD, and claims regarding
21 these inchoate administrative procedures are not fit for judicial review. The non-Gold Club
22 Plaintiffs have not alleged that the hardship they would experience if judicial review was delayed
23 is of the kind or severity that necessitates immediate judicial review.
24 Plaintiffs may file a Second Amended Complaint consistent with these determinations.
25 V. JUDICIAL REVIEW UNDER THE APA
26 Defendants argue that “Plaintiffs’ APA claims challenging the application of SBA’s
27 affiliation rules,” at Counts Seven, Eight, Ten, and Eleven, and Plaintiffs’ APA challenges
28 concerning “the manner in which SBA interpreted and applied the prurient business exclusion to
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1 Plaintiffs,” at Counts Three and Four, must be dismissed because “they do not challenge a final
2 agency action.” ECF No. 28 at 32, 35 n.11. In their reply brief, Defendants clarify that Plaintiffs’
3 claims regarding the constitutionality of the application of the affiliation rules and affiliation
4 exception provision similarly must be dismissed because they do not challenge final agency
5 action. ECF No. 33 at 12-13.16 Plaintiffs argue at length that the Court must hear its claims
6 because they have exhausted their administrative remedies (see ECF No. 32 at 21-34), but “the
7 judicial doctrine of exhaustion of administrative remedies is conceptually distinct from the
8 doctrine of finality” at issue here. Darby v. Cisneros, 509 U.S. 137, 144 (1993).
9 The Court resolves these arguments by first explaining the requirements for judicial review
10 of APA claims pursuant to 5 U.S.C. § 704. Then, the Court determines whether these
11 requirements are satisfied by addressing the claims that are appropriately treated as facial
12 challenges, followed by those claims that are as-applied challenges.
United States District Court
13 A. Legal Standard
14 “Judicial review of the actions of the Small Business Administration is governed by the
15 Administrative Procedure Act.” Jet Inv., Inc. v. Dep’t of Army, 84 F.3d 1137, 1139 (9th Cir.
Northern District of California
16 1996). The APA provides:
17 A person suffering legal wrong because of agency action, or adversely
affected or aggrieved by agency action within the meaning of a
18 relevant statute, is entitled to judicial review thereof. An action in a
court of the United States seeking relief other than money damages
19 and stating a claim that an agency or an officer or employee thereof
acted or failed to act … shall not be dismissed nor relief therein be
20 denied on the ground that it is against the United States.
21 5 U.S.C. § 702. “Agency action made reviewable by statute and final agency action for which
22 there is no other adequate remedy in a court are subject to judicial review. A preliminary,
23 procedural, or intermediate agency action or ruling not directly reviewable is subject to review on
24 the review of the final agency action.” 5 U.S.C. § 704. The APA requires courts to, among other
25 things, “hold unlawful and set aside agency action, findings, and conclusions found to be—(A)
26
27
16
Defendants may also be arguing that Plaintiffs’ claims regarding the constitutionality of the
application of the prurient business exclusion do not challenge final agency action. See ECF No.
28 33 at 12 (“Constitutional claims, like the ones that plaintiffs make with respect to 13 C.F.R.
§ 120.110(p), are reviewable under the APA.”). The Court evaluates these claims as well.
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1 arbitrary, capricious, and abuse of discretion, or otherwise not in accordance with law [or] (B)
2 contrary to constitutional right, power, privilege, or immunity.” 5 U.S.C. § 706(2).
3 “To maintain a cause of action under the APA, a plaintiff must challenge agency action
4 that is final.” Wild Fish Conservancy v. Jewell, 730 F.3d 791, 800 (9th Cir. 2013) (quotation
5 marks omitted). “The APA defines reviewable ‘agency action’ to include ‘the whole or part of an
6 agency rule, order, license, sanction, relief, or the equivalent or denial thereof, or failure to act.’”
7 Wild Fish Conservancy, 730 F.3d at 800 (quoting 5 U.S.C. § 551(13)). Although this definition is
8 “expansive,” it does not encompass “everything done by an administrative agency.” Id. at 800-01.
9 For an agency action to be “final,” it must” mark the “consummation of the agency’s
10 decisionmaking process,” rather than be “of merely tentative or interlocutory nature,” and must be
11 one “by which rights or obligations have been determined, or from which legal consequences will
12 flow.” Bennett v. Spear, 520 U.S. 154, 178 (1997) (quotation marks omitted). “The core question
United States District Court
13 is whether the agency has completed its decisionmaking process, and whether the result of that
14 process is one that will directly affect the parties.” Oregon Nat. Desert Ass’n v. U.S. Forest Serv.,
15 465 F.3d 977, 982 (9th Cir. 2006) (quotation marks omitted). In the Ninth Circuit, “the final
Northern District of California
16 agency action requirement has been treated as jurisdictional.” San Francisco Herring Ass’n v.
17 Dep’t of the Interior, 946 F.3d 564, 571 (9th Cir. 2019).
18 “In an action brought under the APA, questions of ripeness and final agency action are
19 interrelated,” and analysis of whether there has been final agency action often dovetails with
20 analysis of whether a claim is fit for judicial review. Oakley v. Devos, No. 20-cv-03215, 2020 WL
21 3268661, at *5 (N.D. Cal. June 17, 2020) (citing Northcoast Envtl. Ctr. v. Glickman, 136 F.3d
22 660, 668 (9th Cir. 1998)); see Abbott Laboratories, 387 U.S. at 149-51 (evaluating the finality of
23 agency action in determining whether claim was fit for judicial review); American Medical, 217
24 F.3d at 780 (“Under the first prong [of the prudential ripeness analysis], agency action is fit for
25 review if the issues presented are purely legal and the regulation at issue is a final agency
26 action.”).
27 B. Analysis
28 At Counts One through Thirteen, Plaintiffs seek judicial review of the SBA’s actions
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1 pursuant to Section 702 of the APA. FAC ¶¶ 633, 639, 644, 649, 660, 666, 671, 676, 683, 688,
2 693, 704.17 For judicial review of these claims to be proper under the APA, Plaintiffs must
3 challenge a final agency action or the claims must otherwise be reviewable by statute. Wild Fish
4 Conservancy, 730 F.3d at 800.
5 1. Facial Challenges
6 To the extent Plaintiffs challenge the prurient business exclusion, affiliation rules, and
7 Special OHA rules on their face, the Court holds that these claims challenge final agency action.
8 (Defendants do not argue otherwise.) The regulations consist of “agency action” in that they are
9 “the whole or part of an agency rule, order, license, sanction, relief, or the equivalent or denial
10 thereof, or failure to act.” 5 U.S.C. § 551(13). The regulations are final in that they are not “of a
11 merely tentative or interlocutory nature” but are rather a “definitive statement” of the SBA’s
12 positions. Bennett, 520 U.S. at 178; Indus. Customers of Nw. Utilities v. Bonneville Power
United States District Court
13 Admin., 408 F.3d 638, 646 (9th Cir. 2005) (quotation marks omitted). The regulations have been
14 promulgated and “directly affect” the parties. Oregon Nat. Desert Ass’n, 465 F.3d at 982. The
15 Court accordingly may review these facial challenges under the APA.
Northern District of California
16 2. As-Applied Challenges
17 The Court next assesses if Plaintiffs’ as-applied challenges to the prurient business
18 exclusion, affiliation rules and affiliation exception provision, and Special OHA rules challenge
19 final agency action.
20 a. Prurient Business Exclusion
21 Plaintiffs claim, inter alia, that the prurience business exclusion violates the First and Fifth
22 Amendments and is “inconsistent with the SBA Act,” “as applied by the SBA to Plaintiffs.” FAC
23 ¶¶ 629, 635, 642, 647. As discussed in the context of prudential ripeness, as of the filing of the
24 FAC, only Gold Club had received a final denial of its loan forgiveness application (the “May 14
25
26 17
Although Defendants only argue that Plaintiffs’ as-applied claims at Counts Three, Four, Seven,
27 Eight, Ten, and Eleven do not challenge final agency action in their motion, as the final agency
action requirement is a jurisdictional prerequisite in the Ninth Circuit, the Court addresses
28 Plaintiffs’ Counts One, Two, Five, Six, Nine, Twelve, and Thirteen sua sponte. ECF No. 28 at 32,
35 n.11; see San Francisco Herring, 946 F.3d at 571.
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1 Order”) following administrative appeal based on the prurient business exclusion. See id. ¶¶ 105-
2 06. Defendants do not dispute that the May 14 Order is a final agency action and properly subject
3 to judicial review. Id. ¶¶ 106, 11; see 13 C.F.R. § 134.1211(g) (providing that final decisions by
4 the OHA “may be appealed to the appropriate Federal district court only”).
5 The Court holds that the non-Gold Club Plaintiffs have not challenged final agency action.
6 The other Plaintiffs—some of whom who are subject to ongoing Post-Payment Reviews based on
7 the prurient business exclusion, who received FLRDs based on the prurient business exclusion that
8 have since been withdrawn, whose administrative appeals of the FLRDs, or whose loan
9 forgiveness applications are still pending in front of the SBA—object to the SBA’s ongoing
10 application of the prurient business exclusion.18 These unresolved or otherwise “pending
11 administrative proceedings” are the antithesis to “consummation of the” SBA’s “decisionmaking
12 process” regarding the non-Gold Club Plaintiffs’ loan forgiveness applications. U.S. Nuclear, 825
United States District Court
13 F.2d at 1362 (9th Cir. 1987); Bennett, 520 U.S. at 178; see City of San Diego v. Whitman, 242
14 F.3d 1097, 1101 (9th Cir. 2001) (holding, in the context of assessing if there had been final agency
15 action, that “[u]ntil the administrative appeal process is complete, judicial review is premature”).
Northern District of California
16 The FAC does not concretely allege that these Plaintiffs face obligations to repay their loans or
17 other “legal consequences” while the administrative process is in flux. Bennett, 530 U.S. at 178;
18 see 13 C.F.R. § 134.1202(d) (establishing that a pending, timely “appeal by a PPP borrower of a
19 final SBA loan review decision extends the deferment period of the PPP loan until a final decision
20 is issued”). How or if the SBA will ultimately apply the exclusion to these Plaintiffs remains to be
21 seen. See Lujan, 497 U.S. at 891 (requiring “concrete action applying the regulation to the
22 claimant’s situation” for an agency action to be final). The Court accordingly holds that only Gold
23 Club’s as-applied challenge to the prurient business exclusion challenge a final agency action.
24 b. Affiliation Rules and Affiliation Exception Provision
25 No Plaintiff has received a final decision following an appeal to the OHA that their
26
27 18
A detailed recitation of the status of each Plaintiffs’ loan forgiveness application at the time the
28 FAC was filed is provided earlier in this order in Part IV(A)(2)(a) (discussion of the prudential
ripeness of Plaintiffs’ as-applied challenges to the affiliation rules).
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1 application for loan forgiveness is denied because of the affiliation rules. As detailed in the
2 discussion of prudential ripeness, some Plaintiffs have been subject to no scrutiny based on the
3 affiliation rules, some are undergoing Post-Payment Review, some have ongoing appeals in front
4 of the OHA, and others received FLRDs based on the affiliation rules that have since been
5 withdrawn. As was the case with the non-Gold Club Plaintiffs’ as-applied challenges to the
6 prurient business exclusion, to the extent that Plaintiffs are challenging that the manner in which
7 the SBA is applying the affiliation rules—and failing to apply the affiliation exception provision—
8 as unconstitutional and in violation of the APA, Plaintiffs have not identified a final agency action
9 that is properly subject to judicial review. See Whitman, 242 F.3d at 1101 (“Until the
10 administrative appeal process is complete, judicial review is premature.”); U.S. Nuclear, 825 F.2d
11 at 1362 (“We will not entertain a petition where pending administrative proceedings or further
12 agency action might render the case moot and judicial review completely unnecessary.”); Acura of
United States District Court
13 Bellevue v. Reich, 90 F.3d 1403, 1408 (9th Cir. 1996) (holding that an agency’s “interim
14 determination,” subject to review by an ALJ, was not “the final administrative work” whether the
15 agency had “the opportunity and authority to consider, change, and eventually finalize its
Northern District of California
16 position” as to the specific determination”). The Court accordingly holds that Plaintiffs’ as-
17 applied challenges to the affiliation rules and affiliation exception provisions are not appropriate
18 for judicial review under the APA.
19 c. Special OHA Rules
20 At Count Twelve and Thirteen, Plaintiffs assert, inter alia, that the Special OHA Rules
21 violate the Fifth Amendment and the APA as applied by the SBA to Plaintiffs. FAC ¶¶ 695, 701.
22 Gold Club proceeded through the administrative appeals process, was subject to the Special OHA
23 Rules, and ultimately received a final, judicially reviewable denial of its second-draw loan
24 forgiveness application from the OHA. See FAC ¶¶ 105-10; see 13 C.F.R. § 134.1211. While its
25 denial is a final agency action, as discussed above, how the OHA applied the Special OHA Rules
26 to Gold Club is not a “whole or part of an agency rule, order, license, sanction, relief, or the
27 equivalent or denial thereof.” 5 U.S.C. § 551(13); see Norton v. Southern Utah Wilderness
28 Alliance, 542 U.S. 55, 62 (2004) (explaining that 5 U.S.C. § 551(13)’s “categories involve
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1 circumscribed, discrete agency actions,” such as “an agency statement of ... future effect designed
2 to implement, interpret, or prescribe law or policy (rule); “a final disposition ... in a matter other
3 than rule making (order); a permit ... or other form of permission (license); a prohibition ... or ...
4 taking [of] other compulsory or restrictive action (sanction); or a “grant of money, assistance,
5 license, authority, etc., or recognition of a claim, right, immunity…(relief)”) (quotations omitted).
6 Nevertheless, the preliminary, procedural actions by the SBA applying the Special OHA Rules to
7 Gold Club are reviewable under the APA in conjunction with “review of the final agency action,”
8 that is, the ultimate denial of its second-draw loan forgiveness application. See 5 U.S.C. § 704
9 (“A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is
10 subject to review on the review of the final agency action.”) Non-Gold Club Plaintiffs, however,
11 that have not had a final determination by SBA have not established a predicate final agency
12 action to support their as-applied challenge to the Special OHA Rules. Accordingly, other than
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13 Gold Club, all other Plaintiffs’ as-applied challenges are dismissed without prejudice.
14 VI. FIRST AMENDMENT
15 Plaintiffs allege that the prurient business exclusion and incorporating statute violate the
Northern District of California
16 First Amendment facially and as applied to Plaintiffs. FAC ¶¶ 628-29. Defendants bring several
17 arguments that Plaintiffs’ First Amendment claims are not cognizable. At the outset, Defendants
18 argue that the exclusion of prurient businesses from the PPP is not a content or view-point based
19 regulation of speech, but rather a limit on the provision of a government subsidy. Defendants
20 further argue that the prurient business exclusion is not a prior restraint on speech, and given that
21 it does not infringe on a First Amendment protected interest, it need only satisfy rational basis
22 review. Defendants dispute that the exclusion is unconstitutionally vague and that it has been
23 applied in a retaliatory manner.
24 A. Permissible Government Subsidy
25 While Plaintiffs contend that the prurient business exclusion violates the First Amendment
26 “for numerous and various reasons,” the heart of their argument is that the prurient business
27 exclusion is a content-based government regulation of protected speech. Id. ¶ 662. The
28 government may only regulate content-based laws when the regulation is narrowly tailored to
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1 serve a compelling government interest. Plaintiffs argue that the prurient business exclusion and
2 incorporating statute is not narrowly tailored as required. Defendants argue that Plaintiffs
3 improperly assume that the PPP’s prurient business exclusion is a regulation of speech, when it is
4 in fact a permissible content-based limit on a government subsidy. For the foregoing reasons, the
5 Court agrees with Defendants and holds that the prurient business exclusion is not regulation of
6 speech.
7 1. Legal Framework
8 The First Amendment prohibits Congress from enacting laws that abridge “the freedom of
9 speech.” U.S. Const., amdt. I. The government generally may not “restrict expression because of
10 its message, its ideas, its subject matter, or its content.” Police Dep’t of City of Chicago v.
11 Mosley, 408 U.S. 92, 95 (1972). “Content-based laws—those that target speech based on its
12 communicative content—are presumptively unconstitutional and may be justified only if the
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13 government proves that they are narrowly tailored to serve compelling state interests.”19 Reed v.
14 Town of Gilbert, Ariz., 576 U.S. 155, 163 (2015).
15 Although content-based laws are presumptively unconstitutional, “[t]he Spending Clause
Northern District of California
16 of the Federal Constitution … provides Congress broad discretion to tax and spend for the ‘general
17 Welfare,’ including by funding particular state or private programs or activities. That power
18 includes the authority to impose limits on the use of such funds to ensure they are used in the
19 manner Congress intends.” Agency for Int’l Dev. v. Alliance for Open Society Int’l, Inc., 570 U.S.
20 205, 213 (2013) (quotation marks omitted). The “Supreme Court has repeatedly drawn a line
21 between government regulation of speech, on one hand, and government subsidy of speech, on the
22 other.” Camelot Banquet Rooms, Inc. v. U.S. Small Bus. Admin., 24 F.4th 640, 646 (7th Cir.
23 2022). “[I]t is well established that the government can make content-based distinctions when it
24 subsidizes speech” even where it could not make such distinctions when it regulates speech.
25 Davenport, 551 U.S. at 188–89; see Regan v. Tax’n With Representation of Washington, 461 U.S.
26
27
19
That being said, there are categories of speech, such as defamatory or obscene speech, that “can
be constitutionally proscribed because the social interest in order and morality outweighs the
28 negligible contribution of those categories of speech to the marketplace of ideas.” Davenport v.
Washington Educ. Ass’n, 551 U.S. 177, 188 (2007).
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1 540, 549 (1983) (“[A] legislature’s decision not to subsidize the exercise of a fundamental right
2 does not infringe the right.”).
3 The line between the government choosing whether to subsidize certain forms of speech
4 and regulating speech is a fuzzy one. In Perry v. Sindermann, the Supreme Court held that, even
5 though a person may not have an absolute right to a government benefit and “even though the
6 government may deny him the benefit for any number of reasons,” the government:
7 [M]ay not deny a benefit to a person on a basis that infringes his
constitutionally protected interests—especially, his interest in
8 freedom of speech. For if the government could deny a benefit to a
person because of his constitutionally protected speech or
9 associations, his exercise of those freedoms would in effect be
penalized and inhibited.
10
408 U.S. 593, 597 (1972). Perry articulates the “unconstitutional conditions doctrine[:]” the
11
government may not condition the receipt of government benefits “upon a recipient’s agreement to
12
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refrain from exercising her constitutional rights.” Camelot, 24 F.4th at 649 (citing Speiser v.
13
Randall, 357 U.S. 513, 515 (1958)). Allowing the government to deny a benefit to someone based
14
on their constitutionally protected speech would allow the government to “produce a result” that it
15
“could not command directly” through laws outright prohibiting such speech. Perry, 408 U.S. at
Northern District of California
16
597 (quotations omitted). The “constitutionality of government programs that subsidize[] speech
17
… implicate a notoriously tricky question of constitutional law.” Matal v. Tam, 582 U.S. 218,
18
239–40 (2017). On the one hand, “the Government may not deny a benefit to a person on a basis
19
that infringes his constitutionally protected … freedom of speech even if he has no entitlement to
20
that benefit. But at the same time, government is not required to subsidize activities that it does
21
not wish to promote.” Id. (quotation marks and citation omitted).
22
2. Analysis
23
The PPP, as discussed above, provided loans to eligible small businesses to help them
24
weather the COVID-19 pandemic. Congress’s decision to exclude certain types of businesses
25
from second-draw PPP loans, Defendants argue, “does not penalize, prohibit, restrict, or otherwise
26
infringe on speech simply because it chooses not to pay for it.” ECF No. 28 at 38. Plaintiffs
27
recognize that the government “is under no obligation to subsidize speech,” but argue that, under
28
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1 Perry, “it may not deny a benefit on a basis of a person’s exercise of First Amendment Rights.”
2 ECF No. 32 at 40. Plaintiffs correctly identify that adult entertainment offered at strip clubs is
3 “expressive conduct” protected by the First Amendment, if “only marginally so.” Barnes v. Glen
4 Theatre, Inc., 501 U.S. 560, 566 (1991). By excluding businesses that present prurient
5 entertainment from receiving PPP loan forgiveness, Plaintiffs contend, the government is
6 penalizing and inhibiting their right to present protected entertainment. ECF No. 32 at 41; see
7 Perry, 408 U.S. at 597.
8 The “relevant distinction” between a permissible selective subsidy and unconstitutional
9 condition is “between conditions that define the limits of the government spending program—
10 those that specify the activities Congress wants to subsidize—and conditions that seek to leverage
11 funding to regulate speech outside the contours of the program itself.” Alliance for Open Society,
12 570 U.S. at 214-15. “The line is hardly clear, in part because the definition of a particular program
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13 can always be manipulated to subsume the challenged condition.” Id. at 215.
14 Alliance for Open Society addresses the constitutionality of a provision of the Leadership
15 Act, which provided funding to organizations combatting HIV/AIDS. The Leadership Act
Northern District of California
16 imposed “two related conditions on that funding: First, no funds made available by the Act may be
17 used to promote or advocate the legalization or practice of prostitution or sex trafficking … And
18 second, no funds may be used by an organization that does not have a policy explicitly opposing
19 prostitution and sex trafficking.” Id. at 208 (quotation marks omitted). The constitutionality of
20 the first condition was not challenged. The second condition (referred to as the Policy
21 Requirement) was. The Supreme Court held that the Policy Requirement violated the First
22 Amendment:
23 To begin, it is important to recall that the Leadership Act has two
conditions relevant here. The first—unchallenged in this litigation—
24 prohibits Leadership Act funds from being used “to promote or
advocate the legalization or practice of prostitution or sex
25 trafficking.” 22 U.S.C. § 7631 (e). The Government concedes that
§ 7631(e) by itself ensures that federal funds will not be used for the
26 prohibited purposes...
27 The Policy Requirement therefore must be doing something more—
and it is. The dissent views the Requirement as simply a selection
28 criterion by which the Government identifies organizations “who
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believe in its ideas to carry them to fruition.” Post, at 2332. As an
1 initial matter, whatever purpose the Policy Requirement serves in
selecting funding recipients, its effects go beyond selection. The
2 Policy Requirement is an ongoing condition on recipients’ speech and
activities, a ground for terminating a grant after selection is complete.
3 … This case is not about the Government’s ability to enlist the
assistance of those with whom it already agrees. It is about compelling
4 a grant recipient to adopt a particular belief as a condition of funding.
5 By demanding that funding recipients adopt—as their own—the
Government’s view on an issue of public concern, the condition by
6 its very nature affects “protected conduct outside the scope of the
federally funded program.” Rust, 500 U.S., at 197 … By requiring
7 recipients to profess a specific belief, the Policy Requirement goes
beyond defining the limits of the federally funded program to defining
8 the recipient.
9 Id. at 217-19. Unlike the unconstitutional Policy Requirement in Alliance for Open Society, the
10 exclusion of businesses that present live entertainment of a prurient nature does not require any
11 business to adopt or “espouse a specific belief as its own” to receive funding. Id. at 219; see also
12 Speiser, 357 U.S. at 529 (holding a requirement that applicants subscribe to an oath of loyalty in
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13 order to qualify for a veterans’ property-tax exemption unconstitutional). It merely sets limits in
14 “selecting funding recipients.” Alliance for Open Society, 570 U.S. at 218. “[B]y limiting
15 eligibility for PPP funds to businesses that do not present live performances of a prurient sexual
Northern District of California
16 nature,” Congress was specifying which activities it did not want to subsidize rather than
17 leveraging “funding to regulate speech outside the contours of the [PPP] itself.” Pharaohs GC,
18 Inc. v. U.S. Small Bus. Admin. (Pharaohs II), No. 20-CV-665, 2023 WL 9540208, at *7
19 (W.D.N.Y. July 31, 2023), recommendation adopted, 2024 WL 356568 (W.D.N.Y. Jan. 31, 2024)
20 (quoting Alliance for Open Society, 570 U.S. at 15); see Rust v. Sullivan, 500 U.S. 173, 194 (1991)
21 (“[W]hen the Government appropriates public funds to establish a program it is entitled to define
22 the limits of that program.”). The SBA limited its Section 7(a) loan program to businesses that do
23 not present adult entertainment. Congress applied this limit to second-draw PPP loans.
24 Businesses that presented adult entertainment were, categorically, ineligible for second-draw PPP
25 loans; businesses that did not present adult entertainment—and met the other eligibility criteria—
26 were eligible. This eligibility limit did not impose any “ongoing” conditions on “recipients’
27 speech and activities” that they were required to meet in order to continue to receive funding.
28 Alliance for Open Society, 570 U.S. at 218. As the decision to exclude businesses that present
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1 prurient entertainment from the PPP was not “something more” than a selection criteria, the Court
2 concludes that it does not constitute government control of speech. Id.
3 Plaintiffs urge the Court to consider the earlier rulings in Regan and FCC v. League of
4 Women Voters, which Alliance for Open Society builds on. ECF No. 32 at 42. In Regan,
5 nonprofit Taxation with Representation (TWR) challenged a requirement that nonprofit
6 organizations seeking tax-exempt status under 26 U.S.C. § 501(c)(3) not engage in lobbying
7 activities. 461 U.S. at 545-46. Explaining that 501(c)(3) status had “much the same effect as a
8 cash grant,” the Supreme Court held that Congress had “not violated TWR’s First Amendment
9 rights by declining to subsidize its First Amendment activities” and that the lobbying exclusion
10 was a permissible limit on a government subsidy. Id. at 544, 548. The Supreme Court also noted
11 that TWR could return to a “dual structure” it used in the past and incorporate as two separate
12 organizations: “a § 501(c)(3) organization for non-lobbying activities and [an affiliate] § 501(c)(4)
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13 organization for lobbying.” Id. at 544. One arm of TWR could thus obtain § 501(c)(3) benefits
14 while the other could engage in lobbying. While Congress “refused to pay for the lobbying out of
15 public monies,” the lobbying exclusion did “not deny TWR the right to receive deductible
Northern District of California
16 contributions to support its non-lobbying activities,” nor bar it from lobbying. Id. at 545.
17 In FCC v. League of Women Voters, the Supreme Court held that a provision of the Public
18 Broadcasting Amendments Act forbidding news stations that received federal funds from
19 engaging “in editorializing” violated the First Amendment. 468 U.S. 364, 366 (1984). Unlike in
20 Regan, the broadcasting stations at issue could not readily split into affiliate organizations that
21 engaged in editorializing but did not receive federal funds and non-editorializing stations that
22 could receive federal funds. Id. at 399-401. As the stations could not “segregate [their] activities
23 according to the source of … funding,” they had to choose between editorializing but forgoing
24 federal funding and forgoing editorializing but receiving federal funding. Id at 400. Even if “a
25 noncommercial education station … receive[d] only 1% of its overall income from [federal]
26 grants,” it would be entirely barred from editorializing. Id. The Supreme Court thus differentiated
27 League of Women Voters from Regan and held that Regan was not controlling. Id. at 401.
28 Plaintiffs analogize their businesses to the radio stations in League of Women Voters. They
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1 contend that they “are food and/or beverage serving establishments” that also present “protected
2 dance entertainment,” akin to the stations airing both non-editorializing broadcasts and editorials.
3 ECF No. 32 at 42. They argue that the prurient business exclusion prohibits businesses from using
4 “any PPP funds toward any approved purpose if it also presents any live performances of a
5 prurient sexual nature,” and thus the government improperly conditioned “the receipt of funds for
6 mundane business purposes upon whether the recipient offers defined First Amendment-protected
7 activities.” Id. at 42-43.
8 Plaintiffs’ focus on the impact on “mundane business purposes” is misplaced: this would
9 be akin to finding that the editorializing prohibition in League of Women Voters was
10 unconstitutional because it limited federal funding for non-editorializing broadcasts. The Supreme
11 Court did not hold that the editorializing prohibition was unconstitutional because a station that
12 engaged in editorializing and thus could not receive federal funding could not then receive federal
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13 funding for non-editorializing. Rather, it found that the editorializing prohibition was
14 unconstitutional because, unlike in Regan, the stations could not both receive federal funding and
15 broadcast editorials. See League of Women Voters, 468 U.S. at 366. If they received any federal
Northern District of California
16 funding—even if it made up 1% of their budget—they could not broadcast any editorials.
17 Although Plaintiffs’ particular point of comparison is inapt, their underlying argument merits
18 consideration. Unlike in Regan, each Plaintiff cannot—and did not—bifurcate themselves into
19 two businesses, one eligible for PPP loans and loan forgiveness and offering food, beverages, and
20 non-prurient entertainment, and the other ineligible for PPP loan forgiveness but free to offer
21 prurient entertainment. Like the broadcast stations in League of Women Voters, Plaintiffs could
22 not both engage in protected speech and receive federal funding.
23 But there are key differences between this case and League of Women Voters. First, adult
24 entertainment is “only marginally” protected by the First Amendment. Barnes, 501 U.S. at 566.
25 Not so editorial opinions. “[T]he special place of the editorial in our First Amendment
26 jurisprudence reflects the fact that the press, of which the broadcasting industry is indisputably a
27 part carries out a historic, dual responsibility in our society of reporting information and of
28 bringing critical judgment to bear on public affairs.” League of Women Voters, 468 U.S. at 382
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1 (citations omitted). Potential government restriction of editorials, which have “always rested on
2 the highest rung of the hierarchy of First Amendment values” requires greater caution than
3 potential government restriction of adult entertainment. Id. Second, League of Women Voters
4 concerned ongoing grants. The appellee broadcasting station “received and [was] presently
5 receiving grants” and was thus “prohibited from editorializing,” even if it used “wholly private
6 funds to finance its editorial activity.” 468 U.S. at 370, 400. Under the statute at issue there, the
7 station had to choose between forgoing ongoing federal funding and airing editorials or accepting
8 federal funding and not airing editorials. The stations’ continued receipt of federal funds was thus
9 conditioned on not airing editorials; federal funds indirectly regulated their speech. See Perry, 408
10 U.S. at 597 (cautioning that the government cannot “produce” indirectly “a result which it could
11 not command directly”) (quotation modified). But the second-draw PPP loans were one-time
12 subsidies. Plaintiffs did not have to choose between presenting adult entertainment and receiving
United States District Court
13 PPP loans—indeed, they did not have the opportunity to make such a choice. If they presented
14 adult entertainment, they were not eligible for PPP loans. While Plaintiffs may object to the
15 eligibility criteria Congress employed, Congress’s choice to limit second-draw PPP loans to
Northern District of California
16 certain types of businesses is not the same as conditioning the ongoing receipt of federal funding
17 on engaging in or refraining in protected speech. See Alliance for Open Society, 570 U.S. at 213.
18 The Court accordingly finds that the exclusion of businesses that present “live
19 performances of a prurient sexual nature” from the PPP is a permissible eligibility criterion for a
20 government subsidy, not government regulation of speech. See Camelot, 24 F.4th at 651;
21 Pharaohs, 990 F.3d at 229; Am. Ass’n of Pol. Consultants, 810 F. App’x at 9; Deja Vu-San
22 Francisco LLC v. U.S. Small Bus. Admin., No. 20-cv-03982, 2020 WL 6260010, at *8-9 (N.D.
23 Cal. Sept. 11, 2020). And the government may “make content-based distinctions when it
24 subsidizes speech,” as it is doing here, so long as the distinctions are rationally related to a
25 legitimate government purpose. Davenport, 551 U.S. at 188–89.
26 B. The Rational Basis for the Prurient Business Exception
27 As the exclusion of prurient businesses from second-draw PPP loans a statutorily enacted
28 content-based limitation on a subsidy, it only needs to have a “rational relation to a legitimate
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1 government purpose.” See Regan, 461 U.S. at 547. Under rational-basis review, courts uphold
2 classifications if there is a “rational relationship between the disparity of treatment and some
3 legitimate government purpose.” Heller v. Doe, 509 U.S. 312, 319-20 (1993). There must be a
4 “plausible policy reason for the classification.” Nordlinger v. Hahn, 505 U.S. 1, 11–12 (1992). A
5 “legislature that creates these categories need not actually articulate at any time the purpose or
6 rationale supporting its classification[;]” instead, a classification will be upheld “if there is any
7 reasonably conceivable state of facts that could provide a rational basis” for it. Heller, 509 U.S. at
8 320 (quotation marks omitted); see F.C.C. v. Beach Commc’ns, Inc., 508 U.S. 307, 315 (1993)
9 (explaining that, under rational basis review, “a legislative choice is not subject to courtroom fact-
10 finding and may be based on rational speculation unsupported by evidence or empirical data”).
11 Although more exacting levels of scrutiny require a close fit between the purpose of a
12 discriminating statute and its effects, “courts are compelled under rational-basis review to accept a
United States District Court
13 legislature’s generalizations even when there is an imperfect fit between means and ends.” Heller,
14 509 U.S. at 321.
15 Defendants contend that there is a rational basis for the prurient business exclusion because
Northern District of California
16 there are recognized “secondary effects” of adult-entertainment establishments, including
17 “negative impacts on crime rates, property values, and the quality of a city’s neighborhoods” and
18 “unlawful public sexual activity, prostitution, and drug trafficking.” ECF No. 28 at 42 (quotation
19 marks omitted). They argue that Congress’s decision not to subsidize “prurient” businesses is
20 rationally related to the government’s interest in deterring—or at least, in not inadvertently
21 supporting—these negative secondary effects. Id.
22 Courts have repeatedly recognized that the state has a substantial interest in limiting the
23 adverse “secondary effects” of adult entertainment. See Ctr. For Fair Pub. Policy v. Maricopa
24 County, 336 F.3d 1153, 1164-66 (9th Cir. 2003) (holding that the government has a “substantial”
25 interest in “reducing the secondary effects associated” with sexually-oriented businesses and
26 finding that an ordinance limiting the hours when such businesses could operate met intermediate
27 scrutiny); City of Renton v. Playtime Theatres, Inc., 475 U.S. 41, 47-49, 52 (1986) (holding that a
28 zoning regulation that restricted where adult-entertainment venues could operate met intermediate
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1 scrutiny, as it combatted the “unwanted secondary effects” associated with adult entertainment).
2 As the government’s interest limiting these secondary effects is enough to pass intermediate
3 scrutiny, it is enough to satisfy rational basis review. The Court concludes that applying the
4 prurient business exclusion to second-draw PPP loans is rationally related to the “legitimate
5 government” interest in “reducing the secondary effects associated” with businesses that present
6 adult entertainment. Heller, 509 U.S. at 319 (quotation marks omitted); Ctr. for Fair Pub. Policy,
7 336 F.3d at 1166; Camelot Banquet, 24 F.4th at 648 (holding that as the “secondary effects of sex-
8 oriented businesses … can support time, place, and manner regulations, they surely provide a
9 rational basis for Congress to choose not to subsidize this group of businesses”).
10 C. Viewpoint Discrimination
11 Plaintiffs’ additional First Amendment challenge to the prurient business exclusion is
12 grounded in their contention that the exclusion is unconstitutional viewpoint discrimination. See
United States District Court
13 FAC ¶ 629(a), (c). Although Congress’s decisions to subsidize certain categories of speech over
14 others are generally permissible if the decisions have a “rational relation to a legitimate
15 government purpose,” Congress does not have free reign in allocating subsidies. Regan, 461 U.S.
Northern District of California
16 at 547; see Pharaohs II, 2023 WL 9540208, at *8 (“Even though the Court concludes that PPP
17 loans are subsidies, the government still may not make funding choices that are the product of
18 invidious viewpoint discrimination or ‘aimed at the suppression of dangerous ideas.” (quotation
19 marks omitted)). Congress may “not discriminate invidiously in its subsidies in such a way as to
20 aim at the suppression of dangerous ideas.” Regan, 461 U.S. at 547-48 (quoting Cammarano v.
21 United States, 358 U.S. 498, 513 (1959)). That is, in the context of government subsidies,
22 content-based discrimination is permissible (as long as it satisfies rational basis review) but
23 viewpoint-based discrimination is not. “[T]he distinction between content and viewpoint
24 discrimination is not a precise one.” PMG Int’l Div. L.L.C. v. Rumsfeld, 303 F.3d 1163, 1171 (9th
25 Cir. 2002) (quotation marks omitted); see Rosenberger v. Rector & Visitors of Univ. of Virginia,
26 515 U.S. 819, 829, 831 (1995) (describing content discrimination as discrimination based on
27 “subject matter” and viewpoint discrimination as discrimination based on the particular views
28 taken by speakers on a subject).
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1 But under Ninth Circuit law, regulation of sexually explicit material is considered content-
2 based, not viewpoint-based, discrimination. PMG Int’l, 303 F.3d at 1171 (dismissing the
3 plaintiff’s argument that “a ban on sexually explicit materials targets the viewpoint that ‘the
4 human sexual response is positive, healthy and appropriate for consideration and consumption by
5 the adult public.’”). The Ninth Circuit explained:
6 [I]f we were to accept PMG’s argument that materials depicting
nudity … in a lascivious way … articulate the “viewpoint” that the
7 sexual response is positive, then we risk eviscerating altogether the
line between content and viewpoint. To cite one example from the
8 district court, ‘the inclusion in a magazine of an article about rock-
climbing could be said to express a viewpoint that rock climbing is an
9 activity worthy of attention,’ or positive, or healthy.
10 Id. Following PMG International, the Court disagrees with Plaintiffs’ contention that the prurient
11 business exclusion is viewpoint discrimination. See id.; see also Camelot, 24 F.4th at 649
12 (“Accordingly, excluding the entire category or subject matter of prurient live performances from
United States District Court
13 a government subsidy program does not amount to viewpoint discrimination and does not violate
14 the Free Speech Clause.”). The exclusion discriminates based on subject matter, not based on a
15 particular viewpoint regarding the subject matter. And as the prurient business exclusion is a limit
Northern District of California
16 on a government subsidy, not government regulation of speech, such content-based distinctions
17 are permissible so long as they have a rational relationship to a legitimate government purpose.
18 Plaintiffs argue that the Prurient Business Exclusion is akin to the Lanham Act’s
19 prohibition on “immoral or scandalous” trademarks, which the Supreme Court “recently found to
20 be clearly viewpoint-based” in Iancu v. Brunetti. ECF No. 32 at 47 (quotation marks omitted).
21 But the Supreme Court’s holding in Iancu—that the Lanham Act’s prohibition on registering
22 trademarks that consist of or comprise “immoral or scandalous” material was “viewpoint-based”
23 and thus violated the First Amendment—does not control here. 588 U.S. 388, 394 (2019). In
24 Iancu, the Supreme Court found that the exclusion of “immoral or scandalous” marks improperly
25 distinguished between speech about a topic that was “aligned with conventional moral standards”
26 and speech about the same topic that was “hostile” to such standards. Id. Under the “immoral or
27 scandalous” exclusion, the Patent and Trademark Office “rejected marks conveying approval of
28 drug use” such as “YOU CAN’T SPELL HEALTHCARE WITHOUT THC” but registered marks
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1 disapproving of drug use, such as “D.A.R.E. TO RESIST DRUGS AND VIOLENCE.” Id. at 395.
2 The differentiation between speech aligned with conventional moral standards and speech
3 “hostile” to mainstream standards created a viewpoint-based classification and violated the First
4 Amendment. Id. at 394.
5 Plaintiffs argue that the word “prurient” is more than a description of subject matter and is
6 necessarily a moral judgment. See ECF No. 32 at 46-47. They contend that “prurient,” as used by
7 the SBA, means “a shameful or morbid, and unhealthy interest in sex; as opposed to appealing to
8 normal and healthy sexual desires.” Id. at 46. They argue that the prurient business exclusion is
9 thus akin to the “immoral or scandalous” exclusion overturned in Iancu, as it discriminates
10 between speech that is in line with conventional moral standards (that is, “normal and healthy
11 sexual desire”) and speech that is “hostile” to such standards (that is, “a shameful or morbid, and
12 unhealthy interest in sex”). Id.; Iancu, 588 U.S. at 394.
United States District Court
13 Plaintiffs’ argument rests on the assumption that “prurient,” as used in the prurient
14 business exclusion, has the same meaning as it does in the context of the Miller test’s definition of
15 obscenity. Their argument is as follows. The SBA’s enabling Act at 15 U.S.C. § 633(e)
Northern District of California
16 establishes:
17 Notwithstanding any other provision of law, the [SBA] is prohibited
from providing any financial or other assistance to any business
18 concern or other person engaged in the production or distribution of
any product or service that has been determined to be obscene by a
19 court of competent jurisdiction.
20 Plaintiffs contend that by using “obscene”—a term of art with an established legal definition—the
21 SBA Act expressly adopted the legal definition of the word as defined in Miller v. California. See
22 413 U.S. 15 at 24-25 (1973). Under the Miller test, material is obscene (and thus does not warrant
23 First Amendment protection) if: “(a) … the average person, applying contemporary community
24 standards would find that the work, taken as a whole, appeals to the prurient interest … (b) … the
25 work depicts or describes, in a patently offensive way, sexual conduct specifically defined by the
26 applicable state law; and (c) … the work, taken as a whole, lacks serious literary, artistic, political,
27 or scientific value.” Id. (quotations and citations omitted). “Prurient,” as used in the Miller test,
28 has been “constitutionally defined for the purposes of identifying obscenity as that which appeals
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1 to a shameful or morbid interest in sex,” as opposed to “normal, healthy sexual desires.” Brockett
2 v. Spokane Arcades, Inc., 472 U.S. 491, 504 (1985). Plaintiffs argue that because the SBA Act
3 used the term of art “obscene,” Congress adopted the Miller test and the definition of “prurient” as
4 used in the Miller test. Thus, when the SBA uses the word “prurient” elsewhere (for instance, in
5 13 C.F.R. § 120.110(p)) it must be using the word as defined under Miller: a “shameful or morbid
6 interest in sex.” Id.; see ECF No. 32 at 46 (“[I]f ‘prurient’ under the [prurient business exclusion]
7 means anything, it must mean the same things that Congress intended as the constitutional
8 standards as referenced in § 633(e).”). 20
9 The Court recognizes the general principle that “identical words used in different parts of
10 the same statute are generally presumed to have the same meaning,” but this principle is not
11 persuasive here. IBP, Inc. v. Alvarez, 546 U.S. 21, 34 (2005). Plaintiffs’ argument—that a word
12 used in a regulation must have the same meaning as the identical word used within a three-part
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13 definition of a different word used in another statute—extrapolates this principle nearly beyond
14 recognition. Furthermore, nothing in the exclusion itself references the words or other elements in
15 the Miller three-part test that Plaintiffs argue indicate a viewpoint. See 13 C.F.R. § 120.110(p).
Northern District of California
16 The text does not plainly subject sexual live performances to regulation when they are shameful or
17 morbid, or “patently offensive” and lacking in any “serious literary, artistic, political, or scientific
18 value.” The minimal language appears to address sexually explicit performances generally, rather
19 than establishing a clear viewpoint-based regulation.
20 Plaintiffs cite the SBA’s explanation of the exclusion when it was proposed in support of
21 their contention that it effectuates a view-point regulation.21 ECF No. 32 at 34. However, the
22 SBA’s explanation undercuts their contention; it indicates that the exclusion was designed to reach
23
20
24 Plaintiffs also claim that one of the reasons why the prurient business exclusion and statute
violate the First Amendment is that they “fail to conform to the constitutional standards regarding
25 obscenity” as articulated in Miller. FAC ¶ 629(j). But the Miller test is the standard “which must
be used to identify obscene material that a State may regulate without infringing on the First
26 Amendment.” Miller, 413 U.S. at 19. As discussed above, the prurient business exclusion is not
government regulation of speech. In this context, the Miller test is inapplicable.
27
21
The proposed exclusion referred to “live performances of a prurient sexual nature,” and this
verbiage did not change in the final regulation, and no further explanation of the provision or
28 definition of “prurient” was provided. See Business Loan Programs, Final Rule, 61 Fed.Reg.
3,240 (Jan. 31, 1996).
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1 sexually explicit performances and material broadly. See Business Loan Programs, Proposed
2 Rule, 60 Fed.Reg. 64,360 (Dec. 15, 1995) (proposing 13 C.F.R. § 120.110(p) in light of requests
3 for “guidance on the eligibility of small businesses which sell sexually oriented products or
4 services, or engage in sexually oriented activities.”). As the SBA described it, the regulation
5 previously was “silent regarding obscene, pornographic, or sexually oriented activities.” Id.
6 Having considered legal precedent, the SBA determined that “it may exclude small businesses
7 engaging in lawful activities of an obscene, pornographic, or prurient sexual nature.” Id. The
8 SBA did not discuss Brocket or reference its definition of “prurient”.
9 Plaintiffs also ignore that, unlike the Lanham Act’s provision at issue in Iancu, the prurient
10 business exclusion is limited to a specific subject matter. While the word “prurient” undoubtedly
11 carries a degree of the moral judgment that Iancu warns against (to describe something as being of
12 a prurient nature is to describe it as unusually or excessively sexual), it is evident from the
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13 regulatory language that it is bound to a specific topic: explicit sexual material. In contrast, the
14 “immoral or scandalous” exclusion overturned in Iancu was not tethered to any particular subject
15 matter. 588 U.S. at 394. It prohibited all marks that were “hostile” to “conventional moral
Northern District of California
16 standards,” regardless of topic. Id. The prurient business exclusion by no means goes this far,
17 instead excluding certain businesses from a subsidy program based on the nature of the
18 performances or products they offer. See Pharaohs, 990 F.3d at 231. The Court accordingly
19 holds that “[t]he prurience restriction is content—not viewpoint—based.” Pharaohs II, 2023 WL
20 9540208, at *8 (W.D.N.Y. July 31, 2023); Camelot, 24 F.4th at 649 (“Accordingly, excluding the
21 entire category or subject matter of prurient live performances from a government subsidy
22 program does not amount to viewpoint discrimination and does not violate the Free Speech
23 Clause.”). It would “be a category mistake to think that prurience or lasciviousness reflects a
24 ‘viewpoint’ that the government may not discriminate against.” Camelot, 24 F.4th at 649.
25 Instead, it is a “category or subject matter of expressive conduct that may be subject to some forms
26 of government regulation.” Id. Plaintiffs’ First Amendment claim is dismissed to the extent it is
27 based on alleged viewpoint discrimination.
28
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D. The Prior Restraint Doctrine
1
Plaintiffs claim that one of the reasons the prurient business exclusion and incorporating
2
statute violate the First Amendment is that they constitute “an impermissible prior restraint on
3
speech and expression.” FAC ¶ 629(h). “The term prior restraint is used to describe
4
administrative and judicial orders forbidding certain communications” before such
5
communications take place. Alexander v. United States, 509 U.S. 544, 550 (1993) (quotations
6
omitted); see Levine v. U.S. Dist. Ct. for Cent. Dist. Of California, 764 F.2d 590, 593 (9th Cir.
7
1985) (district court’s order prohibiting attorneys from making any statements to the press during
8
the pendency of the case was “properly characterized as a prior restraint”). There are no
9
allegations supporting Plaintiffs’ claim that the prurient business exclusion is a prior restraint. The
10
exclusion does not forbid Plaintiffs “from engaging in expressive activities in the future” or
11
require them “to obtain prior approval for any expressive activities.” ECF No. 32 at 44;
12
United States District Court
Alexander, 509 U.S. at 550-51. As in Alexander, the exclusion “imposes no legal impediment
13
to—no prior restraint on—petitioner’s ability to engage in any expressive activity.” 509 U.S. at
14
551. To the extent Plaintiffs’ First Amendment claim is based on an alleged prior restraint, it is
15
dismissed with prejudice.
Northern District of California
16
E. The Void for Vagueness Doctrine
17
Plaintiffs also claim that the prurient business exclusion is “unconstitutionally vague.”
18
FAC ¶ 629(o). “A fundamental principle in our legal system is that laws which regulate persons
19
or entities must give fair notice of conduct that is forbidden or required.” F.C.C. v. Fox Television
20
Stations, Inc., 567 U.S. 239, 253 (2012). “[A] statute which either forbids or requires the doing of
21
an act in terms so vague that men of common intelligence must necessarily guess at its meaning
22
and differ as to its application violates the first essential of due process of law.” Connally v. Gen.
23
Const. Co., 269 U.S. 385, 391 (1926). The void-for-vagueness doctrine “addresses at least two
24
connected but discrete due process concerns: first, that regulated parties should know what is
25
required of them so they may act accordingly; second … that those enforcing the law do not act in
26
an arbitrary or discriminatory way.” Fox Television, 567 U.S. at 254.
27
“When speech is involved, rigorous adherence to those requirements is necessary to ensure
28
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1 that ambiguity does not chill protected speech.” Id. at 253-54; Reno v. ACLU, 521 U.S. 844, 871-
2 72 (1997) (explaining that the vagueness of content-based speech regulations “raises special First
3 Amendment concerns because of its obvious chilling effect on free speech”). But the void for
4 vagueness doctrine is not applied as strictly in “the context of selective subsidies.” Nat’l
5 Endowment for the Arts v. Finley, 524 U.S. 569, 589 (1998). “[W]hen the Government is acting
6 as patron rather than as sovereign, the consequences of imprecision are not constitutionally
7 severe.” Id. As the Court has concluded that the prurient business exclusion and incorporating
8 statute is a government subsidy, and not a government regulation of speech, the standards
9 articulated in Finley apply here.
10 In Finley, the Supreme Court explained that a provision requiring the National Endowment
11 for the Arts to consider “general standards of decency and respect” when judging the “artistic
12 merit of grant applications” were “undeniably opaque, and if they appeared in a criminal statute or
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13 regulatory scheme, they could raise substantial vagueness concerns.” Id. at 576, 588 (quotation
14 marks omitted). But the same vagueness concerns were not at issue in the context of selective
15 subsidies, because, the Court reasoned, it was “unlikely … that speakers will be compelled to steer
Northern District of California
16 too far clear of any forbidden area in the context of grants of this nature.” Id. at 588. The
17 Supreme Court explained that if the statute at issue was “unconstitutionally vague, then so too are
18 all Government programs awarding scholarships and grants on the basis of subjective criteria such
19 as ‘excellence.’” Id. at 589. Thus, accepting the “respondents’ vagueness argument would be to
20 call into question the constitutionality of these valuable Government programs and countless
21 others like them.” Id. The Supreme Court dismissed the respondents’ argument that the “decency
22 and respect” criteria was unconstitutionally vague. Id.
23 Defendants argue that “[a]s a standard by which the Government makes funding decisions,
24 prurient sexual nature is far less opaque than criteria like ‘general standards of decency,’ and
25 ‘respect for the diverse beliefs and values of the American public’” upheld in Finley. ECF No. 28
26 at 45. The Court accepts Defendants’ overall contention: as the Supreme Court in Finley found
27 that the phrase “general standards of decency and respect for the diverse beliefs and values of the
28 American public” was permissible, despite its imprecision, the term “prurient sexual nature” must
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1 likewise be permissible. As Plaintiffs note, “prurient” is a somewhat capacious term. See ECF
2 No. 32 at 48 (“Lewd, lascivious, erotic, overt strong sexual interest, or sexually-oriented. Take
3 your pick.”). Under Finley, however, language is not unconstitutionally vague just because it may
4 be “susceptible to multiple interpretations.” 524 U.S. at 583, 590. The prurient business
5 exclusion is not void for vagueness.
6 F. First Amendment Retaliation
7 Plaintiffs additionally allege that Defendants are applying the prurient business exclusion
8 against them to retaliate against them for presenting entertainment protected by the First
9 Amendment and to retaliate against them for their connection to the Mohneys and the prior
10 Diamond Club lawsuit against the SBA. See FAC ¶ 629(e). Although this claim is organized as a
11 subpart of Plaintiffs’ challenge to the constitutionality of the prurient business exclusion, it
12 challenges the manner in which Defendants applied the prurient business exclusion, not the
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13 constitutionality of the exclusion itself.
14 To state a case of First Amendment retaliation, a claimant must plead that:
15 (1) he engaged in constitutionally protected activity; (2) as a result,
he was subjected to adverse action by the defendant that would chill
Northern District of California
16 a person of ordinary firmness from continuing to engage in the
protected activity; and (3) there was a substantial causal relationship
17 between the constitutionally protected activity and the adverse action.
18 Boquist, 32 F.4th at 775 (quotation marks omitted). Plaintiffs allege that they engaged in
19 constitutionally protected activity by presenting adult entertainment (FAC ¶ 654) and petitioning
20 the government for redress regarding the denial of PPP loans and loan forgiveness (FAC ¶ 651-
21 655). As to the petitioning activity, Plaintiffs allege that the SBA believes all Plaintiffs (except
22 Meacham and Reeder) are affiliated with the Mohneys and DV Diamond Club of Flint, who filed
23 an earlier action against the SBA. Id. ¶ 651.
24 Plaintiffs’ claim that the SBA applied the prurient business exclusion against them in
25 retaliation for offering allegedly prurient adult entertainment is impermissibly circular. While in
26 the most literal sense, the SBA investigated or denied loan forgiveness to Plaintiffs because they
27 “engaged in constitutionally protected activity,” in this case, engaging in the “constitutionally
28 protected activity” was grounds for ineligibility for PPP loans and loan forgiveness. Boquist, 32
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1 F.4th at 775. Denying someone a benefit because they did not meet the criteria to qualify for the
2 benefit, without more, is not retaliation. See Regan, 461 U.S. at 546 (explaining that where the
3 government “merely refused to pay for the [First Amendment activities of] lobbying out of public
4 monies,” it did not deny the plaintiffs “any independent benefit on account of its intention to
5 lobby”). Defendants, applying Regan, argue that “Plaintiffs must show that SBA retaliated against
6 them for some expression ‘independent’ of the basis on which Congress chose not to subsidize its
7 activities.” ECF No. 28 at 46. The Court agrees. To the extent Plaintiffs allege that Defendants
8 retaliated against them for engaging in the “constitutionally protected activity” of offering adult
9 entertainment, this claim is dismissed with prejudice.
10 Plaintiffs also claim that Defendants are using the prurient business exclusion to retaliate
11 against Plaintiffs “and/or their principals [for] having participated in other litigation against the
12 SBA arising out of Pandemic funding programs.” FAC ¶ 629(e). This is a cognizable
United States District Court
13 “constitutionally protected activity.” Boquist, 32 F.4th at 775. To state a claim for retaliation,
14 Plaintiffs must also allege that they were subjected “to adverse action by the defendant that would
15 chill a person of ordinary firmness from continuing to engage in the protected activity” and there
Northern District of California
16 was a causal relationship between the “constitutionally protected activity and the adverse action.”
17 Id. Plaintiffs appear to be alleging that the “adverse action” Defendants subjected them to was
18 denying their loan forgiveness applications based on the prurient business exclusion. As discussed
19 above, only Gold Club has received a final determination based on the prurient business exclusion,
20 and thus only Gold Club’s claim is ripe for judicial review. 22 The Court finds that Gold Club has
21 alleged facts to plausibly show that Defendants took “adverse action” against it.
22 The Court accordingly turns to the third element of First Amendment retaliation: causation.
23 Defendants argue that Plaintiffs have failed to “plausibly allege a substantial causal relationship
24 between the constitutionally protected activity” at issue—participating in “other litigation against
25 the SBA”—“and the adverse action.” ECF No. 28 at 47 (quotations omitted). They argue that
26
27 22
If Plaintiffs contend Defendants have taken “adverse action” related to the prurient business
28 exclusion against the non-Gold Club Plaintiffs, they may include such allegations in their Second
Amended Complaint.
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1 Plaintiffs’ allegations of causation are undercut by the fact that a year and a half elapsed between
2 the protected petitioning activity and the final denial of Gold Club’s loan, and “the fact that SBA
3 initially forgave the majority of Plaintiffs’ loans during the same period.” Id. Plaintiffs counter
4 that while a temporal gap between the protected First Amendment activity and the adverse act may
5 indicate that the adverse act was not retaliatory, it is not dispositive, and courts must consider
6 other factors when assessing causation. ECF No. 32 at 50; see Keyser v. Sacramento City Unified
7 Sch. Dist., 265 F.3d 741, 753 (9th Cir. 2001).
8 The Court agrees with Plaintiffs that the temporal gap between the protected activity and
9 the final denial of Gold Club’s application is not dispositive. While “proximity in time between
10 the protected action and the allegedly retaliatory” adverse act may support an inference of
11 causation, a gap in time does not necessarily disprove causation at the motion to dismiss stage.
12 Keyser, 265 F.3d at 751.
United States District Court
13 “At the pleading stage,” a complaint must allege “plausible circumstances connecting the
14 defendant’s retaliatory intent to the suppressive conduct.” Arizona Students’ Ass’n v. Arizona Bd.
15 of Regents, 824 F.3d 858, 870 (9th Cir. 2016). Although Plaintiffs allege that Defendants
Northern District of California
16 misapplied the affiliation exception provision because of their association with the Mohneys and
17 the Diamond Club Action (see FAC ¶¶ 650-55), the Court cannot locate any allegations
18 “connecting” the SBA’s denial of Gold Club’s loan forgiveness application with Gold Club’s
19 involvement with the Mohneys and the prior litigation against the SBA. Arizona Students’ Ass’n,
20 824 F.3d at 870. If Plaintiffs can allege facts to support that Defendants denied the application
21 because of Gold Club’s involvement with the prior litigation, they may do so in their Second
22 Amended Complaint.
23 Plaintiffs’ First Amendment retaliation claim at Count One is accordingly dismissed to the
24 extent it is based on Defendants retaliating against Plaintiffs by applying the prurient business
25 exclusion against them. Plaintiffs may amend this claim consistent with this Order, though the
26 Court cautions Plaintiffs that their retaliation claim appears misplaced as a subpart of their
27 challenge to the constitutionality of the prurient business exclusion and would fit better as a stand-
28 alone claim or subpart to Plaintiffs’ retaliation claim at Count Five.
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1 In sum, the Court finds that the exclusion of businesses that “[p]resent live performances
2 of a prurient sexual nature” from the PPP does not constitute government regulation of speech. It
3 is a viewpoint-neutral permissible criteria for a government subsidy that has a rational relationship
4 “to a legitimate governmental purpose.” Regan, 461 U.S. at 547. Plaintiffs’ Count One is
5 accordingly dismissed without prejudice.
6 VII. FIFTH AMENDMENT
7 At Count Two, Plaintiffs assert that that the prurient business exclusion and incorporating
8 statute violate the Fifth Amendment because they treat businesses that present adult entertainment
9 differently from other establishments “for no compelling, important, or rational reason.”
10 FAC ¶ 635. Plaintiffs’ claim fails. “Generally, statutory classifications are valid if they bear a
11 rational relation to a legitimate governmental purpose.” Regan, 461 U.S. at 547. Although
12 “[s]tatutes are subjected to a higher level of scrutiny if they interfere with the exercise of a
United States District Court
13 fundamental right, such as freedom of speech,” where no fundamental right is implicated or
14 suspect class is regulated, courts apply rational basis review. Id. The Court has established that
15 the prurient business exclusion is a permissible limit on a government subsidy, not government
Northern District of California
16 regulation of speech, that has a rational relationship to a legitimate government interest. It is
17 accordingly valid under the Fifth Amendment. See id.
18 Plaintiffs also contend that the prurient business exclusion and statute violate the Fifth
19 Amendment by violating “occupational liberty rights of the affected Plaintiffs” and their
20 employees. FAC ¶ 635(c). The Ninth Circuit has “recognized the liberty interest in pursuing an
21 occupation of one’s choice.” Engquist v. Oregon Dep’t of Agric., 478 F.3d 985, 997 (9th Cir.
22 2007), aff’d sub nom. Engquist v. Oregon Dep’t of Agr., 553 U.S. 591 (2008). “[A] plaintiff can
23 make out a substantive due process claim if she is unable to pursue an occupation and this inability
24 is caused by government actions that were arbitrary and lacking a rational basis.” Id. The
25 inability to pursue an occupation must be a “complete prohibition,” not a “brief interruption.”
26 Conn v. Gabbert, 526 U.S. 286, 292 (1999). Among other reasons, Plaintiffs’ occupational liberty
27 claim fails because they have not alleged that their employees were completely prohibited from
28 engaging in their preferred type of employment. Id. Moreover, to the extent Plaintiffs’ employees
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1 were “unable to pursue an occupation” due to government action, the Court has determined that
2 the prurient business exclusion is rationally related to a legitimate government interest and thus
3 not arbitrary or “lacking a rational basis.” Engquist, 478 F.3d at 997. Plaintiffs’ Count Two is
4 accordingly dismissed.
5 VIII. REQUEST TO DISMISS OR STRIKE OTHER CLAIMS
6 A. Plaintiffs’ Claims for Attorneys’ Fees and Injunctive Relief
7 Plaintiffs assert claims for “Attorneys’ Fees and Costs” pursuant to the EAJA (FAC ¶ 716-
8 719) and “Injunctive Relief” (FAC ¶ 736-745). Neither a request for attorneys’ fees under the
9 EAJA nor a request for injunctive relief is an independent cause of action, and these claims are
10 accordingly dismissed. Cota v. United States, No. C 13-00576, 2013 WL 6234574, at *7 (N.D.
11 Cal. Dec. 2, 2013), aff’d, 628 F. App’x 500 (9th Cir. 2015) (“The EAJA does not provide an
12 independent cause of action for litigants in federal court; instead, it simply authorizes the payment
United States District Court
13 of fees to the prevailing party in an action against the United States.”) (quotation marks and
14 citations omitted); EVIG, LLC v. Natures Nutra Co., 685 F. Supp. 3d 991, 996 (D. Nev. 2023)
15 (“[I]njunctive relief is not an independent, free-standing cause of action. It is a form of relief the
Northern District of California
16 court may grant.”). These claims are stricken without prejudice to Plaintiffs requesting these
17 forms of relief from the Court.
18 B. Plaintiffs’ Jury Demand
19 Defendants request that the Court strike Plaintiffs’ request for a jury, arguing that
20 sovereign immunity “precludes demands for jury trials on claims against the federal government
21 unless Congress has clearly waived that immunity and expressly granted a right to a jury trial.”
22 ECF No. 28 at 51 (quoting Haynie v. Veneman, 272 F. Supp. 2d, 10, 20 (D.D.C. 2003). Plaintiffs
23 counter that the sovereign immunity argument is misplaced, as the “‘APA waives sovereign
24 immunity for suits seeking relief other than money damages from federal agencies or officials,’
25 including declaratory relief, which Plaintiffs seek.” ECF No. 32 at 51 (quoting Tucson Airport
26 Auth. v. Gen. Dynamics Corp., 922 F. Supp. 273, 280 (D. Ariz. 1996), aff’d 136 F.3d 641 (9th Cir.
27 1998). Plaintiffs argue that because they are seeking declaratory relief, they have a right to a jury
28 trial. Id. (citing Kam-Ko Bio-Pharm Trading Co. Ltd-Australasia v. Mayne Pharma (USA) Inc.,
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1 560 F.3d 935, 942 (9th Cir. 2009) (“[I]n a declaratory relief action, as in other civil actions, a party
2 has an absolute right to a jury trial unless a jury has been waived.”).23
3 “[T]he Seventh Amendment right to trial by jury does not apply in actions against the
4 Federal Government.” Lehman v. Nakshian, 453 U.S. 156, 160 (1981). The United States is
5 generally “immune from suit save as it consents to be sued ... and the terms of its consent to be
6 sued in any court define that court's jurisdiction to entertain the suit.” Id. (quotations omitted).
7 Where “Congress waives the Government’s immunity from suit … the plaintiff has a right to a
8 trial by jury only where that right is one of the terms of the Government’s consent to be sued.” Id.
9 (quotations omitted). The right to a jury trial “must be unequivocally expressed” by Congress. Id.
10 (quotations omitted).
11 As Defendants argue, the APA does not “provide a right to a trial by jury.” W. Radio
12 Servs. Co. v. U.S. Forest Serv., 578 F.3d 1116, 1123 (9th Cir. 2009). The fact that Congress
United States District Court
13 expressly allowed the SBA to be sued (other than for money damages) does not, contrary to what
14 Plaintiffs argue, indicate otherwise. See Lehman, 453 U.S. at 160 (holding that where “Congress
15 waives the Government’s immunity from suit …the plaintiff has a right to a trial by jury only
Northern District of California
16 where that right is one of the terms of the Government’s consent to be sued”) (quotations omitted).
17 That jury trials are generally available in declaratory relief actions does not entitle Plaintiffs to one
18 in their suit against the government absent express authorization. See Synanon Church v. United
19 States, 557 F. Supp. 1329, 1331 (D.D.C. 1983) (finding that the proposition that “jury trials are
20 available as a matter of right in most declaratory judgment actions … is not applicable to cases
21 against the government”). Plaintiffs argue that the request to strike the jury trial is premature as
22 “more jury-triable issues may emerge.” ECF No. 32 at 52. But Plaintiffs’ jury demand is
23
23
24 Plaintiffs also argue that Defendants improperly brought their motion to strike under 12(b)(6)
rather than 39(a)(2) and it should thus be denied. ECF No. 32 at 51. The Court sees no reason to
25 prioritize form over substance and considers Defendants’ motion to strike even though they used
the wrong vehicle to bring their argument before the Court. ECF No. 33 at 22 n.32; see Schwartz
26 v. Finn, No. 20-cv-02044, 2020 WL 13599735, at *7 (N.D. Cal. July 24, 2020) (noting, where
defendants fashioned their request to strike a jury demand as a 12(b)(6) motion, that parties “may
27 move to strike a jury trial pursuant to Fed. R. Civ. P. 39(a)(2) – not Rule 12(b)(6)” but
“[n]onetheless” addressing “the substantive issues” raises in defendants’ request). In any event,
28 the Court may strike a jury demand sua sponte. Fed. R. Civ. P. 39(a)(2).
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Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 70 of 71
1 precluded based on the identity of the defendant, not on the type of claims they assert. The Court
2 accordingly grants Defendants’ request to strike the jury trial demand.
3 IX. CONCLUSION
4 Defendants’ motion to dismiss is accordingly granted in part and denied in part.
5 Plaintiffs’ as-applied constitutional claims at Count One and Two are dismissed as to all
6 Plaintiffs except Gold Club on ripeness grounds. Plaintiffs’ facial constitutional claims at Count
7 One and Two, and Gold Club’s as-applied claims as to the same, are dismissed for failure to state
8 a claim. Dismissal is without prejudice.
9 To the extent Count Three challenges the facial validity of 13 C.F.R. § 120.110(p) or the
10 manner in which it was applied to Gold Club’s loan, the claim survives. Count Three is otherwise
11 dismissed without prejudice. To the extent Count Four challenges the April 2020 IFR applying 13
12 C.F.R. § 120.110(p) to first-draw PPP loans or Gold Club’s claim that 13 C.F.R. § 120.110(p) has
United States District Court
13 been applied against it unlawfully to deny its application for forgiveness of its second-draw loan,
14 this claim survives. Count Four is otherwise dismissed without prejudice.
15 Count Five is dismissed without prejudice for on ripeness grounds and for failure to
Northern District of California
16 challenge a final agency action.
17 Counts Six, Seven, and Eight challenging the application of the affiliation exception
18 provision are dismissed on ripeness grounds and for failure to challenge a final agency action.
19 Dismissal is without prejudice. The as-applied challenges at Counts Nine, Ten, and Eleven are
20 similarly dismissed without prejudice. To the extent Counts Nine and Eleven challenge the facial
21 validity of the affiliation rules, these claims survive.
22 Plaintiffs’ as-applied challenges to the Special OHA Rules at Counts Twelve and Thirteen
23 are dismissed as to all Plaintiffs except Gold Club on ripeness grounds and for lack of final agency
24 action. Dismissal is without prejudice.
25 All but Gold Club’s estoppel claims at Count Fourteen are dismissed on ripeness grounds.
26 Dismissal is without prejudice.
27 Count Fifteen, for attorneys’ fees, is dismissed. Plaintiffs may request attorneys’ fees in
28 their prayer for relief.
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Case 3:24-cv-04241-LJC Document 45 Filed 09/30/25 Page 71 of 71
1 Count Sixteen, regarding the constitutionality of the injunction provision at 15 U.S.C.
2 Section 634(b)(1), is dismissed on ripeness grounds. Dismissal is without prejudice.
3 Count Eighteen, for injunctive relief, is dismissed. Plaintiffs may request injunctive relief
4 in their prayer for relief.
5 Plaintiffs’ jury demand is stricken.
6 Plaintiffs may file an amended order by October 31, 2025 consistent with this order.
7 Plaintiffs must comply with the “short and plain statement” requirement of Rule 8(a).
8 IT IS SO ORDERED.
9 Dated: September 30, 2025
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LISA J. CISNEROS
12 United States Magistrate Judge
United States District Court
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Northern District of California
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