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Strip Clubs Cleared by Judge to Get SBA Covid-19 Loan Money

May 12, 2020, 1:51 PM

Dozens of strip clubs are eligible to receive money under the multibillion-dollar federal Covid-19 loan program, after the Eastern District of Michigan found that the U.S. Small Business Administration had no authority to bar them from eligibility.

“Congress provided temporary paycheck support to all Americans employed by all small businesses that satisfied the two eligibility requirements—even businesses that may have been disfavored during normal times,” the U.S. District Court for the Eastern District of Michigan said.

The Paycheck Protection Program, which is part of the Coronavirus Aid, Relief, and Economic Security Act, authorizes the SBA to guarantee hundreds of billions of dollars of loans to small businesses. The loans are made through private lenders and may be forgiven if used to pay employees’ wages.

The law provides that “any business concern” is eligible for the loans if it has fewer than 500 employees during the covered period.

The SBA, however, adopted a rule excluding from eligibility a variety of businesses, including banks, political lobbying firms, certain private clubs with restrictive admissions practices, and businesses that present entertainment or sell products of a “prurient sexual nature.”

Named plaintiff DV Diamond Club of Flint LLC and 41 other strip clubs sued, alleging they were denied PPP loans because their entertainment was deemed to be of a “prurient sexual nature.”

The court issued an injunction Monday ordering the SBA to guarantee the loans as long as the clubs meet the eligibility requirements. The injunction applies only to the plaintiffs and three intervenors in the case.

Judge Matthew F. Leitman issued the opinion.

Shafer and Associates, and Fortis LLP represent the plaintiffs.

The case is DV Diamond Club of Flint LLC v. SBA, E.D. Mich., No. 20-cv-10899, 5/11/20.

To contact the reporter on this story: Peter Hayes in Washington at PHayes@bloomberglaw.com

To contact the editor responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com

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