First Amended Complaint — The Escape Room North LLC v. Small Business Administration (July 11, 2022)

Summary

The First Amended Complaint for Declaratory and Injunctive Relief in The Escape Room North LLC v. Small Business Administration and Isabella Casillas Guzman, Cause No. 1:22-cv-00123-TWP-DLP, in the U.S. District Court for the Southern District of Indiana, filed July 11, 2022 as Document 25. The plaintiff, a Fishers, Indiana business, challenges under the Administrative Procedure Act the SBA's denial of its Shuttered Venue Operators Grant application for $425,541.27, filed on or about August 19, 2021. The complaint states that the SBA denied the application and an appeal without giving reasons, rescinded the denial after the original complaint of January 14, 2022, and issued a final denial on June 1, 2022. It pleads arbitrary and capricious action, action contrary to law and a decision unsupported by substantial evidence, and asks the court to set aside the denial and order an award.

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“First Amended Complaint — The Escape Room North LLC v. Small Business Administration (July 11, 2022).” Original at ecf.insd.uscourts.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/amended-complaint-no-1-22-cv-00123-dkt-25-836310475c/, SHA-256 05683adf0e5168f511a61b77bef03b5b52bd1bb71e35e1880a963993e267c0bf.

Full text

Case 1:22-cv-00123-TWP-DLP Document 25 Filed 07/11/22 Page 1 of 11 PageID #:
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

THE ESCAPE ROOM NORTH LLC, )
)
Plaintiff, )
)
v. )
) Cause No. 1:22-cv-00123-TWP-DLP
SMALL BUSINESS ADMINISTRATION )
and ISABELLA CASILLAS GUZMAN, )
Administrator, Small Business )
Administration, )
)
Defendants. )

FIRST AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Plaintiff The Escape Room North LLC (“Escape Room North”), by counsel, files this

First Amended Complaint for Declaratory and Injunctive Relief, and states as follows:

INTRODUCTION

1. This is an action under the Administrative Procedure Act (“APA”), 5 U.S.C. § 706,

and the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, seeking emergency federal

financial assistance unlawfully withheld by Defendants Small Business Administration (“SBA”)

and its Administrator, Isabella Casillas Guzman.

2. The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, as

amended, 15 U.S.C. § 9009a, established the Shuttered Venue Operators Grant (“SVOG”)

Program to provide emergency financial assistance to eligible live entertainment businesses

impacted by the global COVID-19 pandemic. The SVOG Program is administered by the SBA

and Administrator Casillas Guzman.

3. Escape Room North, a small business located in Fishers, Indiana that produces and

manages live performances, and theatrical productions by actors and performers, demonstrated its
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eligibility for a SVOG award in its application to the SBA and, following an initial denial, its

appeal to the SBA. The SBA denied both Escape Room North’s application and its appeal, without

giving a reason for either denial.

4. The SBA rescinded its denial of Escape Room North’s application after Escape

Room North filed its Complaint for Declaratory and Injunctive Relief. The SBA then denied

Escape Room North’s application in what SBA deemed its final agency decision.

5. The SBA’s final decision denying Escape Rooms North’s application arbitrarily

treated Escape Room North differently than multiple similarly situated escape rooms that received

SVOG awards.

6. The SBA’s final decision denying Escape Room North’s application also

improperly denied Escape Room North’s application due to purported barriers to SVOG funding

that are not in the text of the statute authorizing grants for shuttered venue operators and that cannot

be supported by a reasonable interpretation of the statute.

7. The COVID-19 pandemic has had a devastating impact on Escape Room North,

forcing it to temporarily shut its doors until it subsequently reopened, but with significant

restrictions. As a result of losing its primary source of revenue (ticket sales), Escape Room North

experienced a significant loss of its revenue in 2020 as compared to 2019. Escape Room North

needs a SVOG award for precisely the reason Congress created the SVOG Program: to help

eligible live entertainment businesses like Escape Room North recover from the major setbacks

they have experienced because of the pandemic.

8. SVOG funds are limited, and once the SBA has depleted the appropriated amount

through awards, eligible businesses may not be able to receive the emergency assistance. Thus,

even though Escape Room North demonstrated that it is an eligible live venue operator, it may

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receive no assistance if SVOG funds are depleted before the SBA corrects the erroneous denial of

Escape Room North’s application.

JURISDICTION AND VENUE

9. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 because it

presents federal questions under the APA.

10. Venue lies in this district under 28 U.S.C. § 1391(e)(1) because inter alia, Plaintiff

resides in this district, the location of most of the witnesses reside in this district, the location of

the events occurred substantially in this district, and the SBA has a regional office in Indianapolis,

Indiana. The conditions precedent to suit, namely, administrative complaints and the attempt to

secure administrative remedies, occurred in or around Indianapolis, Indiana as well. When

conditions precedent require exhaustion of administrative remedies, pursuing those remedies is a

substantial part of the events or omissions giving rise to the claim, because had the administrative

remedies yielded a favorable result, litigation would not have occurred.

11. This Court has authority to issue declaratory and injunctive relief under 5 U.S.C. §

706 and 28 U.S.C. §§ 2201 and 2202.

PARTIES

12. Plaintiff The Escape Room North LLC is a small business that produces and

manages live performances by actors and performers. Founded in 2016, Escape Room North has

already become a staple and essential part of the Fishers community, hosting audiences of all ages

for its variety of performances. Children, families, and friends flock to Escape Room North to

purchase tickets to enjoy its creative and immersive performances, which include lighting and

sound effects and elaborate and detailed set designs such as its titanic room and castle set.

13. Defendant Small Business Administration is an independent agency of the federal

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government. The SBA’s mission is to help Americans start, build, and grow businesses.

14. Defendant Isabella Casillas Guzman is the Administrator of the SBA and oversees

its operations. Administrator Casillas Guzman is sued in her official capacity.

BACKGROUND

A. Shuttered Venue Operators Grant Program

15. The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the

“Act”), signed into law December 27, 2020, included $15 billion for grants to operators of

shuttered venues. Pub. L. No. 116-260 § 324. The American Rescue Plan, enacted March 11, 2021,

amended the Act by providing an additional $1,250,000,000 for SVOG awards. Pub. L. No. 117-

2 § 5005(a).

16. SVOG awards may be used for specified business expenses, including payroll, rent

and utility payments that are incurred between March 1, 2020, and December 31, 2021. 15 U.S.C.

§ 9009a(d)(1)(A)(i).

17. An eligible entity may receive a SVOG award in an amount equal to 45 percent of

its gross earned revenue in 2019. 15 U.S.C. § 9009a(c).

18. Eligible businesses with 2021 first quarter revenues of no more than 30% of their

2019 first quarter revenues are eligible for supplemental grants in the amount of 50 percent of the

original award amount, up to a maximum combined initial and supplemental SVOG award amount

of $10 million. 15 U.S.C. § 9009a(b)(3)(A); SBA, SBA Opens Supplemental Grant Applications

for Shuttered Venue Operators Grant Awardees (Aug. 27, 2021),

https://www.sba.gov/article/2021/aug/27/sba-opens-supplemental-grant-applications-

shutteredvenue-operators-grant-awardees. Supplemental awards can be used for costs incurred

through June 30, 2022. 15 U.S.C. § 9009a(d)(1)(A)(i).

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19. Eligible entities under the Act include live venue operators and promoters, as well

as theatrical producers, live performing arts organization operators, museum operators, motion

picture theatre operators, and talent representatives. 15 U.S.C. § 9009a(a)(1)(A).

20. In addition to falling within an eligible business category, to qualify for a SVOG

award a business must meet general eligibility criteria including, inter alia, that the business was

fully operational on February 29, 2020, suffered at least a 25% reduction of gross earned revenue

during at least one quarter of 2020 as compared to 2019, and has reopened or intends to reopen.

15 U.S.C. § 9009a(a)(1)(A). The Act lists a number of characteristics that would render an entity

ineligible, including, inter alia, issuance of securities on a national securities exchange, employing

more than 500 employees, and presenting live performances of a prurient sexual nature. Id. §

9009a(a)(1)(A)(vi), 9009a(a)(1)(B).

21. The Act defines live venue operator to include an entity that as a principal business

activity organizes, promotes, produces, manages, or hosts “events by performing artists” for which

there is a ticketed cover charge, performers are paid a guaranteed amount by contract, and not less

than 70 percent of revenue is generated through ticket sales or event beverages, food or

merchandise. 15 U.S.C. § 9009a(a)(3)(A)(i).

22. The Act specifies that for a live venue operator (as well as a live venue promoter,

theatrical producer, or live performing arts organization operator) to be eligible, it must have

additional characteristics. It must put on events with defined performance and audience spaces;

use mixing equipment, a public address system and a lighting rig; engage one or more individuals

to carry out at least two of the following roles—sound engineer, booker, promoter, stage manager,

security personnel, or box office manager; sell tickets or impose a cover charge for most

performances; fairly pay artists; and market its events including through print or electronic

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publications, websites, mass email, or social media. 15 U.S.C. § 9009a(a)(1)(A)(iii).

B. Escape Room North’s SVOG Application and the SBA’s Denial

23. On or about August 19, 2021, Escape Room North applied for a SVOG award of

$425,541.27.

24. In its application, Escape Room North demonstrated that it satisfied the criteria for

eligibility. Escape Room North demonstrated that its losses in 2020 exceeded the 25% statutory

threshold by submitting its federal tax returns for 2019 and 2020. Escape Room North also

submitted, among other things, business records reflecting payments to performers and ticket sales,

and floor plans depicting audience and performance areas along with placement of its audio

systems. Escape Room North additionally provided the certifications of eligibility required by the

SBA’s guidance on SVOG applications.

25. Escape Room North learned from the SBA’s portal that its application was denied.

The portal’s denial notice gave no explanation of the reason why the SBA found Escape Room

North ineligible.

26. On October 3, 2021, Escape Room North submitted an administrative appeal of the

denial to the SBA. Because the denial included no explanation, Escape Room North’s appeal

elaborated on why it satisfies all of the criteria for eligibility as a live venue operator. Escape Room

North explained in detail and with supporting documentation how it meets each of the general

eligibility requirements for a SVOG award and each of the specific eligibility requirements for live

venue operator.

27. On November 11, 2021, the SBA notified Escape Room North by email that its

appeal was denied. As with the denial of Escape Room North’s application, the SBA gave no

reason for denying the appeal.

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28. On January 14, 2022, the Escape Room North filed its Complaint for Declaratory

and Injunctive Relief.

29. The SBA rescinded its decision denying Escape Room North’s SVOG application

after the Escape Room North filed its complaint.

30. On June 1, 2022, the SBA notified Escape Room North by email that its application

was denied and that the denial was the agency’s final decision.

31. The SBA’s final decision denying Escape Rooms North’s application arbitrarily

treated Escape Room North differently than similarly situated escape rooms that received SVOG

awards.

32. The SBA’s final decision denying Escape Room North’s application also denied

Escape Room North’s application due to purported barriers to SVOG funding that are not in the

text of the statute authorizing grants for shuttered venue operators and that cannot be supported by

a reasonable interpretation of the statute.

CLAIMS FOR RELIEF

33. The courts recognize a strong presumption favoring judicial review of

administrative action.

34. The APA provides that “[a] person suffering legal wrong because of agency action,

or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is

entitled to judicial review thereof.” 5 U.S.C. § 702.

35. The APA provides that “[a] person suffering legal wrong because of agency action,

or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is

entitled to judicial review thereof.” 5 U.S.C. § 702.

36. The APA provides that courts will “hold unlawful and set aside” agency action that

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is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or

“unsupported by substantial evidence.” 5 U.S.C. § 706(2)(A) and (E), respectively.

37. The SBA is an “agency” whose final actions are reviewable under the APA.

COUNT I - ARBITRARY AND CAPRICIOUS AGENCY ACTION

38. Escape Room North realleges and incorporates by reference each of the preceding

paragraphs and allegations.

39. A basic requirement of administrative law is that an agency provide the reasons for

its decisions. However, the SBA initially gave no reason for denying Escape Room North’s

application, nor did it provide any reason when it denied Escape Room North’s appeal.

40. The SBA’s final agency decision on Escape Room North’s application conflicts

with the evidence of Escape Room North’s eligibility that it presented to SBA in its application

and in its appeal.

41. The SBA further erred by treating Escape Room North disparately from similarly

situated businesses that were granted SVOG awards. Specifically, upon information and belief, the

SBA approved the SVOG applications of other escape rooms and other venues similar to Escape

Room North. These entities hire the performers and staff for the same functions as Escape Room

North and also host similar events.

42. For each of these reasons, the SBA’s denial of Escape Room North’s SVOG award

request is arbitrary and capricious.

COUNT II - AGENCY ACTION CONTRARY TO LAW

43. Escape Room North realleges and incorporates by reference each of the preceding

paragraphs and allegations.

44. Escape Room North meets the Act’s definition of live venue operator and satisfies

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the Act’s general eligibility criteria for a SVOG award.

45. The SBA’s denial of Escape Room North’s SVOG award request therefore violated

the Act and is contrary to law.

COUNT III - AGENCY DECISION UNSUPPORTED BY SUBSTANTIAL EVIDENCE

46. Escape Room North realleges and incorporates by reference each of the preceding

paragraphs and allegations.

47. The SBA’s denial of Escape Room North’s SVOG award request is supported by

no evidence in the record, let alone substantial evidence. Escape Room North’s application and

appeal presented evidence that demonstrates Escape Room North is eligible for a SVOG award.

48. The SBA’s denial of Escape Room North’s SVOG award request is thus

unsupported by substantial evidence.

PRAYER FOR RELIEF

For the foregoing reasons, Escape Room North respectfully requests that this Court:

1. Declare unlawful and set aside Defendants’ denial of Escape Room North SVOG

award request.

2. Preliminarily and permanently order Defendants to consider Escape Room

North’s application for a SVOG award consistent with applicable law and the evidence before

the SBA.

3. Preliminarily and permanently order Defendants to award Escape Room North

SVOG funds in an amount for which congress intended.

4. Preliminarily and permanently order Defendants to award Escape Room North

SVOG funds in an amount for which congress intended.

5. Preliminarily and permanently order Defendants to retain appropriations from the

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Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Pub. L. No. 116-260

§ 324) and/or the American Rescue Plan (Pub. L. No. 117-2 § 5005(b)) in an amount sufficient

to fund Plaintiff’s SVOG initial and supplemental grant awards.

6. Award Plaintiff its costs and reasonable attorney fees; and

7. Grant such other and further relief as the Court deems just and proper.

Respectfully submitted,

HEWITT LAW & MEDIATION, LLC

By: /s/ Michele L. Lorbieski
Michelle L. Lorbieski (#28923-49)
Brian C. Hewitt (#8341-49)

Michele L. Lorbieski
Brian C. Hewitt
HEWITT LAW & MEDIATION, LLC
255 N Alabama St., Ste. 300
Indianapolis, IN 46204
Ph: (317) 922-2822
Fax: (317) 342-3768
mlorbieski@hewittlm.com
bhewitt@hewittlm.com

Michael T. Miller
ALERDING CASTOR LLP
47 S Pennsylvania St., Ste. 700
Indianapolis, IN 46204
Ph: (317) 829-1910
Fax: (317) 423-2089
mmiller@alerdingcastor.com

Counsel for Plaintiff

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CERTIFICATE OF SERVICE

The undersigned hereby certifies that on July 11, 2022, a true and correct copy of the
foregoing document was filed electronically and e-served on the following parties by operation of
the Court’s electronic filing system:

Gina M. Shields
ASST. U.S. ATTORNEY
Gina.Shields@usdoj.gov
Counsel for Small Business Administration
& Isabella Casillas Guzman

By: /s/ Michele L. Lorbieski

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