Paycheck Protection Program Exclusion of Nude Dancing Establishments Likely Constitutional

So says the Seventh Circuit, agreeing with an earlier Second Circuit decision.

From Camelot Banquet Rooms, Inc. v. U.S. SBA, decided Wednesday by the Seventh Circuit, in a per curiam opinion by Judges Michael Kanne, Ilana Rovner & David Hamilton:

Plaintiffs in this case are about fifty businesses all over the country that offer live adult entertainment in the form of nude or nearly nude dancing. They seek to obtain loans under the second round of the Paycheck Protection Program enacted by Congress to address economic disruption caused by the Covid-19 pandemic. By statute, Congress excluded plaintiffs and several other categories of businesses from the second round of the Program.

Plaintiffs assert that their exclusion from the Program violates their constitutional rights, primarily under the Free Speech Clause of the First Amendment.

For one brief shining moment, the district court agreed, and "issued a preliminary injunction that enjoins the United States Small Business Administration (SBA) from denying plaintiffs eligibility for the loan program based on the statutory exclusion." But the Seventh Circuit stayed the injunction pending appeal; though the matter still awaits a final decision, the question whether to grant the stay required the court to take a peek at the merits, and here's what it wrote (in an opinion that's quite consistent with a similar Second Circuit decision from March):

The problem with plaintiffs' First Amendment claim and the preliminary injunction here is that Congress is not trying to regulate or suppress plaintiffs' adult entertainment. It has simply chosen not to subsidize it. Such selective, categorical exclusions from a government subsidy do not offend the First Amendment.

The Supreme Court has repeatedly drawn a line between government regulation of speech, on one hand, and government subsidy of speech on the other. Its decisions show that the government is not required to subsidize activity simply because the activity is protected by the First Amendment….

[A] selective subsidy program may violate the First Amendment if it is "aim[ed] at the suppression of dangerous ideas." To take an easy example, even if Congress can exclude lobbyists entirely from the Program's subsidies, it could not choose to subsidize Democratic lobbyists while excluding Republicans. Plaintiffs' theory here is that Congress chose to exclude their businesses from the subsidy program because it deemed their "ideas" about sexuality to be dangerous.

This theory does not seem to distinguish between government suppression of protected activity and denial of a subsidy. Plaintiffs' theory seems to be that the denial of a subsidy is itself the act of suppression…. [But the selective-subsidy cases] surely require[] something more, like viewpoint discrimination, than denial of the subsidy itself….

The [district court's] theory was that even if the exclusion of plaintiffs' businesses from the Program was not "traditional viewpoint discrimination," the exclusion's focus on "prurience" created a free speech problem. The exclusion, as the court saw the issue, depends on prurience, which the court saw as the expressive, "sexually arousing" "message" of the adult entertainment. The court viewed the exclusion as thus an effort to use a subsidy exclusion to suppress a "dangerous idea[.]" …

[But t]he statutory exclusion from the Program of businesses with prurient live entertainment is better understood not as viewpoint discrimination but as a permissible classification based on subject matter. The Supreme Court made this point in R.A.V. v. City of St. Paul:

"When the basis for the content discrimination consists entirely of the very reason the entire class of speech at issue is proscribable, no significant danger of idea or viewpoint discrimination exists. Such a reason, having been adjudged neutral enough to support exclusion of the entire class of speech from First Amendment protection, is also neutral enough to form the basis of distinction within the class. To illustrate: A State might choose to prohibit only that obscenity which is the most patently offensive in its prurience—i.e., that which involves the most lascivious displays of sexual activity. But it may not prohibit, for example, only that obscenity which includes offensive political messages."

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 terms instead identify a category or subject matter of expressive conduct that may be subject to some forms of government regulation….

Accordingly, excluding the entire category or subject matter of prurient live performances from a government subsidy program does not violate the Free Speech Clause. See Pharaohs GC v. U.S. SBA (2d Cir. 2021) (term "prurient" in SBA regulation describes subject matter, not viewpoint, for exclusion from Program); PMG Int'l Division L.L.C. v. Rumsfeld (9th Cir. 2002) (treating "lascivious" materials as articulating a "viewpoint" would "risk eviscerating altogether the line between content and viewpoint"); General Media Communications, Inc. v. Cohen (2d Cir. 1997) ("[H]ow, for example, would one go about discussing and considering the political issues of the day from a lascivious viewpoint?").

The court also rejected the district court's conclusion that the exclusion lacks a rational basis:

The district court appears to have applied an erroneous and unduly rigorous form of judicial review, second-guessing legislative decisions and compromises on policy grounds, and concluding that the Program was over- and under-inclusive in various respects. A government spending program, especially one responding to an economic emergency, is subject to the least rigorous form of judicial review. 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.

When pressed in this suit to justify the exclusion of plaintiffs from the Program's subsidies, the government pointed to the "secondary effects" of sex-oriented businesses that can be used to justify time, place, and manner regulations of such businesses. Plaintiffs and the district court responded by criticizing Congress for not having made a record on the subject at the time the legislation was enacted.

Any expectation that Congress would have taken the time to make such a record would seem unrealistic, to put it mildly. Any expectation or demand that Congress must make such a record is contrary to constitutional doctrine. The rational-relation test requires a challenger in litigation to exclude any possible rational grounds that the legislature might have deemed sufficient grounds for the statutory distinction. It does not require the legislature to have made a contemporaneous record on the subject.

Similarly, plaintiffs' and the district court's assertion that the rationale for excluding plaintiffs is under-inclusive is not easy to reconcile with the rational-relation test. All sorts of legislative classifications, exclusions, and compromises pass muster even if they are over- or under-inclusive. "[C]ourts are compelled under rational-basis review to accept a legislature's generalizations even when there is an imperfect fit between means and ends. A classification does not fail rational-basis review because it 'is not made with mathematical nicety or because in practice it results in some inequality,' " and "[t]he problems of government are practical ones and may justify, if they do not require, rough accommodations—illogical, it may be, and unscientific." …

[Plaintiffs] were not singled out for this exclusion, even among businesses primarily engaged in activity protected by the First Amendment. Congress also chose to exclude from the Program businesses "primarily engaged in political or lobbying activities." Such business activities are much closer to the core of the First Amendment than the dances at plaintiffs' bars and clubs. 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 no viewpoint discrimination.

Congress also excluded many other categories of businesses: banks, lenders, finance companies, and some pawn shops; life insurance companies; businesses located in foreign countries; pyramid sale distribution plans; businesses engaged in any illegal activity; private clubs; government-owned businesses; loan packagers; businesses with an "Associate" who is in prison, on probation, on parole, or who has been indicted for a felony or crime of moral turpitude; and businesses that have previously defaulted on SBA or other federally assisted loans.

These exclusions are not difficult to understand in terms of policy and politics. They all help defuse potential "gotcha" criticisms of this generous emergency program that might be used to undermine political support for the Program and the overall legislation. Such tailoring of legislation to build and maintain political support is perfectly constitutional, at least in the absence of viewpoint or invidious discrimination, of which we see no signs here.

{The Constitution does not prohibit legislation on the basis of morality. Consider, for example, the possibility that Congress might choose to exclude from this or other subsidy programs alcoholic beverage makers, casinos and other gambling businesses, weapons makers, and so on. Such line-drawing is left to the legislature, absent viewpoint or invidious discrimination.}