Oct. 6, 2021 – The First Amendment does not prohibit Congress from excluding businesses that offer live adult entertainment from the second round of the Paycheck Protection Program (PPP), the U. S. Court of Appeals for the Seventh Circuit has ruled.

In Camelot Banquet Rooms, Inc., et al., v. U.S. Small Business Association, No. 21-2589 (Sept. 15, 2021), a three-judge panel ruled unanimously that when Congress used the term “prurient” to identify a category of business excluded from participating in PPP, it engaged in subject matter exclusion, not viewpoint discrimination.

The PPP was created as part of the Coronavirus, Aid, Relief, and Economic Security Act, a $2.2 trillion stimulus bill enacted in March of 2020. The program provided private loans at low interest rates to businesses to help with payroll and other costs.

Camelot Banquet Rooms, Inc., an adult entertainment business based in Milwaukee, and about fifty other adult businesses filed a lawsuit in the U.S. District Court for the Eastern District of Wisconsin, after they were deemed ineligible for the PPP program.

A statutory provision excluded from the program businesses that put on prurient live performances or earn more than de minimis revenue from the sale of prurient products, services, depictions, or displays.

Lack of Subsidy Not Suppression

The district court ruled that the plaintiffs’ First Amendment claim was likely to succeed and granted them a preliminary injunction. The district court, Judge Lynn Adelman, based the ruling on a determination that the exclusion of the plaintiffs from the PPP program constituted an “attempt to suppress a dangerous idea.”

Additionally, the district court ruled that the classification of PPP applicants based on the prurient nature of their business was not rationally related to a legitimate government purpose.

In a per curiam opinion, the panel for the Seventh Circuit Court of Appeals made short work of the plaintiffs’ argument that by excluding them from the PPP program, the government was penalizing them for engaging in protected expression.

It’s true that in Barnes v. Glen Theatre, Inc. the U.S. Supreme Court held that nude dancing is entitled to some protection under the First Amendment. But choosing not to subsidize nude dancing is not the same as suppressing it, the Seventh Circuit wrote.

“The Supreme Court has repeatedly drawn a line between government regulation of speech on one hand, and government subsidy of speech on the other,” the court wrote.

“Its decisions show that the government is not required to subsidize activity simply because the activity is protected by the First Amendment.”

Wrong Standard of Review

The Seventh Circuit also ruled that the district court applied a too-rigorous standard of review in concluding that the exclusion of the plaintiffs from the PPP program failed the rational relation test and was both over- and under-inclusive.

“A government spending program, especially one responding to an economic emergency, is subject to least rigorous form of judicial review,” the court wrote.

“In enacting such legislation, Congress must respond quickly to an emergency and must hammer together a coalition of majority votes in both houses. The need for compromises and trade-offs is never greater.”

The fact that Congress neglected to make a record about the secondary effects of sex businesses – effects that the Supreme Court has held can be valid justifications for time, place, and manner regulations of sex businesses – was immaterial, the Seventh Circuit held.

“Any expectation that Congress would have taken the time to make such a record would seem unrealistic, to put it mildly,” the court wrote. “Any expectation or demand that Congress must make such a record is contrary to constitutional doctrine.”

The district court’s determination that the basis for excluding sex businesses from the PPP program was under-inclusive was at odds with the rational-relations test, according to the Seventh Circuit.

“All sorts of legislative classifications, exclusions, and compromises pass muster even if they are over- or under-inclusive,” the court wrote, citing Supreme Court precedent that requires courts to accept a legislative generalization despite an imperfect fit between means and ends.

'Marketplace of Erotic Discourse'

That Congress excluded other types of businesses from participating in the PPP undercut the plaintiffs’ argument, the court reasoned. For instance, businesses engaged in lobbying and political activities were barred.

“Such business activities are much closer to the core of the First Amendment than the dances at plaintiffs’ clubs and bars,” the court wrote. “Yet lobbyists and political consultants were also excluded. Congress chose not to require taxpayers to subsidize them. We do not see a plausible constitutional basis for requiring government subsidies of lobbyists, at least as long as there is viewpoint discrimination.”

The Seventh Circuit also dismantled the district court’s rationale for concluding that the prurience-based exclusion from the PPP program was an “attempt to suppress a dangerous idea.” The court relied on R.A.V. v. City of St. Paul, a 1992 Supreme Court case that struck down a municipal hate crimes ordinance, to hold that in categorizing business that deal in prurience as ineligible for the PPP program, Congress was classifying based on subject matter, not discriminating based on viewpoint.

“In effect, the Court was telling us, it would be a category mistake to think that prurience or lasciviousness reflects a ‘viewpoint’ that the government may not discriminate against,” the court wrote. “The terms instead identify a category or subject matter of expressive conduct that may be subject to some form of government regulation.

“That’s the point we made in the Kucharek case cited in R.A.V. We said that a statute could prohibit obscene (prurient) material entirely (a subject matter) but could not ‘distort the marketplace of erotic discourse by suppressing that obscenity which conveys a disfavored message.’”