Sixth Circuit Order — DV Diamond Club v. SBA (E.D. Mich.)

Summary

An order of the U.S. Court of Appeals for the Sixth Circuit filed May 15, 2020 in DV Diamond Club of Flint, LLC v. SBA, No. 20-1437, entered as ECF No. 48 in originating Case No. 4:20-cv-10899, with the clerk's cover letter to counsel. The panel of Circuit Judges Siler, Stranch and Donald denies the SBA's motion to stay, pending appeal, the district court's preliminary injunction, which followed its conclusion that the SBA exceeded its statutory authority in adopting its PPP Ineligibility Rule. The order calls eligibility for "any business concern" meeting the size criteria under 15 U.S.C. § 636(a)(36)(D)(i) a reasonable interpretation and finds the harm to the SBA far outweighed by the harm to plaintiffs. It denies the request for an administrative stay as moot. Judge Siler dissents, stating the language seems to be ambiguous, and would grant the stay.

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“Sixth Circuit Order — DV Diamond Club v. SBA (E.D. Mich.).” Original at archive.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/court-filing-dv-diamond-club-of-flint-llc-v-u-s-small-business-adminis-c7a965d72c/, SHA-256 62a4e9f6ea3f1d680574a4ee197f3974ba6db6ae0912d6c89c93d8127754b6f4.

Full text

Case 4:20-cv-10899-MFL-DRG
Case: 20-1437 Document:
ECF No. 48
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UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
100 EAST FIFTH STREET, ROOM 540
Deborah S. Hunt POTTER STEWART U.S. COURTHOUSE Tel. (513) 564-7000
Clerk CINCINNATI, OHIO 45202-3988 www.ca6.uscourts.gov

Filed: May 15, 2020
Mr. Peter A. Caplan

Ms. Courtney L. Dixon

Mr. James Jordan Gilligan

Mr. Matthew Joseph Hoffer

Ms. Jennifer M. Kinsley

Mr. Bradley J. Shafer

Re: Case No. 20-1437, DV Diamond Club of Flint, LLC, et al v. SBA, et al
Originating Case No. : 4:20-cv-10899

Dear Counsel:

The Court issued the enclosed Order today in this case.

Sincerely yours,

s/Amy E. Gigliotti on behalf of Jill Colyer
Case Manager
Direct Dial No. 513-564-7024

cc: Mr. David J. Weaver

Enclosure
Case 4:20-cv-10899-MFL-DRG
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No. 20-1437
FILED
UNITED STATES COURT OF APPEALS May 15, 2020
DEBORAH S. HUNT, Clerk
FOR THE SIXTH CIRCUIT

DV DIAMOND CLUB OF FLINT, LLC, et al., )
)
Plaintiffs-Appellees, )
)
689 EATERY, CORP.; 725 EATERY, CORP.; )
GJJM ENTERPRISES, LLC, )
)
Intervenors-Appellees, ) ORDER
)
v. )
)
SMALL BUSINESS ADMINISTRATION, an )
agency of the United States, et al., )
)
Defendants-Appellants. )

Before: SILER, STRANCH, and DONALD, Circuit Judges.

Defendants, the Small Business Administration and others (collectively the “SBA”), appeal

the district court’s opinion and order granting plaintiffs’ motion for a preliminary injunction. A

district court’s order granting or denying a preliminary injunction is immediately appealable

pursuant to 28 U.S.C. § 1292(a)(1). The SBA moves to stay the preliminary injunction pending a

decision on the merits of its appeal. See Fed. R. App. P. 8(a)(2). The district court denied a similar

motion but granted the SBA’s alternative request to extend the date by which it must comply with

the injunction. Plaintiffs and intervenors jointly respond, and the SBA replies.
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At issue is the proper interpretation of recent legislation enacted by the United States

Congress to alleviate the incredible economic hardship caused by the COVID-19 pandemic. See

Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), Pub. L. No. 116-136,

134 Stat. 281 (2020). Under a CARES Act provision entitled “Keeping American Workers Paid

and Employed Act,” Congress created the Paycheck Protection Program (“PPP”), authorizing the

SBA to guarantee up to $349 billion in PPP loans. In April 2020, Congress increased the amount

to $659 billion. The PPP is intended to “[i]ncrease[] eligibility for certain small businesses and

organizations.” 15 U.S.C. § 636(a)(36)(D). During the covered time-period,

in addition to small business concerns, any business concern, nonprofit organization,
veterans organization, or Tribal business concern described in section 657a(b)(2)(C)
of this title shall be eligible to receive a covered loan if the business concern, nonprofit
organization, veterans organization, or Tribal business concern employs not more than
the greater of-- (I) 500 employees; or (II) if applicable, the size standard in number of
employees established by the Administration for the industry in which the business
concern, nonprofit organization, veterans organization, or Tribal business concern
operates.

15 USC § 636(a)(36)(D)(i) (emphasis added). Despite this language, the SBA has adopted a “PPP

Ineligibility Rule” that renders sexually oriented businesses and certain other businesses ineligible

to receive PPP loan guarantees. Plaintiffs are sexually oriented businesses that own and operate

(1) venues that present clothed, semi-nude, and/or nude performance entertainment, (2) adult

novelty stores, and (3) businesses that service those establishments. They represent that their

businesses are not unlawful and operate in conformity with various licenses and permits. The SBA

does not argue otherwise. Nevertheless, lenders are denying plaintiffs’ applications for PPP loans

based on the SBA’s PPP Ineligibility Rule. The district court concluded that the SBA exceeded

its statutory authority when it adopted this rule and granted plaintiffs’ motion for preliminary

injunctive relief.
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We evaluate four factors when deciding whether to grant a stay under Federal Rule of

Appellate Procedure 8(a): “(1) the likelihood that the party seeking the stay will prevail on the

merits of the appeal; (2) the likelihood that the moving party will be irreparably harmed absent a

stay; (3) the prospect that others will be harmed if the court grants the stay; and (4) the public

interest in granting the stay.” Coal. to Defend Affirmative Action v. Granholm, 473 F.3d 237, 244

(6th Cir. 2006) (quoting Mich. Coal. of Radioactive Material Users, Inc. v. Griepentrog, 945 F.2d

150, 153 (6th Cir. 1991)). “These factors are not prerequisites that must be met, but are interrelated

considerations that must be balanced together.” Mich. Coal., 945 F.2d at 153. As the moving

party, the SBA has the burden of showing it is entitled to a stay. Overstreet v. Lexington–Fayette

Urban Cty. Gov’t, 305 F.3d 566, 573 (6th Cir. 2002).

“We begin by considering ‘the likelihood that the district court’s preliminary injunction

order will be upheld on appeal.’” Serv. Emp. Int’l Union Local 1 v. Husted, 698 F.3d 341, 343–44

(6th Cir. 2012) (quoting Coal. to Defend, 473 F.3d at 244). “[T]he district court’s ultimate

determination as to whether the four preliminary injunction factors weigh in favor of granting or

denying preliminary injunctive relief is reviewed for abuse of discretion. This standard of review

is ‘highly deferential’ to the district court’s decision.” Certified Restoration Dry Cleaning

Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 541 (6th Cir. 2007) (citation omitted) (quoting

Leary v. Daeschner, 288 F.3d 729, 739 (6th Cir. 2000)). “Thus, we reverse a decision granting a

preliminary injunction ‘only if the district court ‘relied upon clearly erroneous findings of fact,

improperly applied the governing law, or used an erroneous legal standard.’’” Southern Glazer’s

Distrib. of Ohio, LLC v. Great Lakes Brewing Co., 860 F.3d 844, 849 (6th Cir. 2017) (quoting Six

Clinics Holding Corp., II v. Cafcomp Sys., Inc., 119 F.3d 393, 399 (6th Cir. 1997)).
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An agency’s interpretation of a statute is reviewed using the two-step framework outlined

in Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837 (1984). “First, always,

is the question whether Congress has directly spoken to the precise question at issue. If the intent

of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give

effect to the unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842–43; see

Arangure v. Whitaker, 911 F.3d 333, 336 (6th Cir. 2018) (“[A]ll too often, courts abdicate this

duty by rushing to find statutes ambiguous, rather than performing a full interpretive analysis.”)

In applying Chevron to the first factor—likelihood of success on the merits—the district court

determined that the CARES Act unambiguously foreclosed the SBA from precluding sexually-

oriented businesses from receiving PPP loan guarantees during the pandemic. It relied on language

in the Act specifying that eligibility would be conferred to “any business concern.” 15 U.S.C. §

636(a)(36)(D)(i). The term “any” carries an expansive meaning. See SAS Inst., Inc. v. Iancu, 138

S. Ct. 1348, 1354 (2018). It “refer[s] to a member of a particular group or class without distinction

or limitation” and, in this way, “impl[ies] every member of the class or group.” Id. (quoting Oxford

English Dictionary (3d ed., Mar. 2016)). Thus, the Act’s specification that “any business concern”

is eligible, so long as it meets the size criteria, is a reasonable interpretation. That broad

interpretation also comports with Congress’s intent to provide support to as many displaced

American workers as possible and, in doing so, does not lead to an “absurd result” as the SBA

claims. Finally, by specifying “any business concern,” Congress made clear that the SBA’s

longstanding ineligibility rules are inapplicable given the current circumstances. Neither may the

SBA continue to apply these rules pursuant to § 636(a)(36)(B), which states: “Except as otherwise

provided in this paragraph, the [SBA] may guarantee covered loans under the same terms,

conditions, and processes as a loan made under this subsection.” 15 U.S.C. § 636(a)(36)(B). This
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provision likely constitutes a catch-all governing procedures otherwise unaffected by the mandate

of the CARES Act and the PPP and does not detract from the broad grant of eligibility.

The SBA points out that the CARES Act specifies that “nonprofit organization[s]” are

eligible for PPP loans, even though they are ineligible for ordinary SBA loans. See 15 U.S.C.

§ 636(a)(36)(D)(i). Therefore, it reasons, if Congress wanted sexually-oriented businesses to be

eligible for PPP loan guarantees, it would have said so. This specification, however, supports the

district court’s analysis. It was necessary to specify non-profits because they are not businesses,

whereas the Act’s specification that eligibility is conferred on “any business concern”

encompasses sexually oriented businesses such as strip clubs that would ordinarily be ineligible

for loans.

With regard to the remaining factors, the harm to the SBA in the absence of a stay is far

outweighed by the harm to plaintiffs if a stay is granted. Plaintiffs will be unable to obtain relief,

and there will likely be no funds available to them through the PPP by the time this appeal is

concluded. Plaintiffs are also at a substantial risk of losing their businesses. The stated purpose

of the PPP is to protect the employment and livelihood of employees. Thus, the public interest is

served in guaranteeing that any business, including plaintiffs’, receive loans to protect and support

their employees during the pandemic which, we can all agree, constitutes extraordinary

circumstances. The fact that other businesses will not receive loans if plaintiffs do is inherent in

the SBA’s practice of guaranteeing loans on a first-come, first-served basis. Regardless of whether

plaintiffs do or do not receive these loans, there will be other businesses that do or do not receive

loans as well. The SBA otherwise continues doing the same work it has been doing.

On balance we conclude that the relevant factors weigh in favor of denying a stay. The

motion for a stay is DENIED. The request for an administrative stay is DENIED as moot.
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SILER, J., dissenting.

I respectfully dissent from the majority order. I would like to amplify further on this, but

only a few short hours remain before the Small Business Administration (SBA) has to comply with

the order and provide the funds requested. It is also a weekend and time is running short. The

district court granted a preliminary injunction largely based on the plaintiffs’ strong likelihood of

success on the merits. In doing so, the court found that Congress has unambiguously made “any

business concern” eligible for PPP loans under the CARES Act. However, the relevant language

in the Act seems to be ambiguous because it is open to two plausible interpretations. Certainly,

the statute says “any business concern.” Still, it is unclear whether Congress meant that any

business concern was eligible for a PPP loan regardless of SBA restrictions or whether the

language modifies the preceding language allowing businesses with up to 500 employees to be

eligible for the loans.

Congress said that PPP loans are to be administered “under the same terms, conditions, and

processes” as 7(a) loans, which exclude private clubs and adult entertainment businesses from

eligibility. 15 U.S.C. § 636(a)(36)(B). Congress was clearly aware of SBA’s regulatory

restrictions on 7(a) loans. If it intended for any business entity to be eligible for PPP loans, it could

have simply said that without providing the additional language contained in the text. Instead,

Congress specifically allowed certain businesses who were not previously eligible to apply for

PPP loans. Under the interpretation from the district court, it admitted that “it would ordinarily be

absurd to conclude that Congress meant to provide financial assistance to, among others, certain

sexually oriented businesses and private clubs that discriminate.”

In conclusion, I do not think that the plaintiffs have demonstrated a strong likelihood of

success on the merits that Congress intended for clubs of this sort to receive loans through the PPP.
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Although it is clear that the plaintiffs may be seriously harmed if they are not eligible for these

loans, if they do receive the loans, the money may be denied to other small businesses because the

funds would be expended on the plaintiffs herein. I would grant the stay of the injunction until a

decision on the merits of the case has been determined. Plaintiffs have not met their burden of

demonstrating a high likelihood of success on the merits. They should not be allowed to ride the

gravy train without a careful analysis of this law more than we can give them on short notice.

ENTERED BY ORDER OF THE COURT

Deborah S. Hunt, Clerk

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