By Jonathan Stempel
May 11 (Reuters) - A U.S. judge ruled on Monday that strip clubs cannot be blocked from obtaining emergency federal loans during the coronavirus pandemic, and declared invalid a rule barring a wide range of businesses from obtaining those loans.
U.S. District Judge Matthew Leitman in Flint, Michigan, issued a preliminary injunction barring the U.S. Small Business Administration from enforcing a rule to exclude businesses that present live performances or sell products of a "prurient sexual nature" from loans under the Paycheck Protection Program.
The judge also said the SBA cannot exclude other businesses such as banks, political lobbying firms and restricted private clubs from the roughly $660 billion program, saying Congress intended to support all qualified small businesses, including those it might have been "disfavored" before the pandemic struck.
"Simply put, Congress did not pick winners and losers in the PPP," Leitman wrote.
"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," he added. "But these are no ordinary times, and the PPP is no ordinary legislation."
The decision may be appealed.
While Leitman said his order was not a "nationwide injunction" covering all PPP applicants, it is a win for a variety of businesses, also including payday loan companies, that have sued over being excluded from the PPP, part of the $2.3 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.
SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin were also named as defendants. The U.S. Department of Justice, which represented the defendants, did not immediately respond to a request for comment.
The case had been brought by owners of the Little Darlings strip club in Flint, and a few dozen other clubs across the country that were forced to close as COVID-19, the disease caused by the coronavirus, began its spread.
Leitman ruled three days after the SBA's Office of Inspector General criticized the agency's administration of the PPP, including its failure to prioritize the right businesses for loans.
It also followed a May 1 preliminary injunction by U.S. District Judge Lynn Adelman in Milwaukee to stop the SBA from rejecting loans for four Wisconsin strip clubs operating as Silk Exotic Gentlemen's Club.
Adelman said the SBA singled out strip clubs based on their speech, making the rule unconstitutional. The federal government is appealing.
Brad Shafer, a lawyer representing strip clubs in the Michigan case, said he was happy with Leitman's 45-page decision.
"We felt that under Supreme Court precedent, the SBA exceeded its authority from Congress," Shafer said in an interview.
The case is DV Diamond Club of Flint LLC et al v U.S. Small Business Administration et al, U.S. District Court, Eastern District of Michigan, No. 20-10899. (Reporting by Jonathan Stempel in New York; Editing by Richard Chang)
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