FLINT, Mich. — DV Diamond Club of Flint, the company doing business as gentlemen's club Little Darlings in Flint, Michigan, sued the Small Business Administration (SBA) and federal officials on Wednesday over the discriminatory language against sexually-oriented businesses in the disaster loan application for COVID-19 relief.
The lawsuit also names as defendants SBA Administrator Jovita Carranza, the United States of America and Secretary of the Treasury Steven Mnuchin.
The Little Darlings lawsuit is one of the earliest challenges to the constitutionality of the SBA’s sex business exclusion, based on the controversial word “prurient.” Legal observers consulted by XBIZ last week expected these constitutional challenges.
As XBIZ reported, the language of the SBA application asks potential applicants for economic relief to first confirm they do not belong to one of several disqualifying categories.
The longest exclusion — which appears to be deliberately worded to target the largest segment of sex workers and sex-related businesses possible — states that the applicant must declare that they do not “present live performances of a prurient sexual nature or derive directly or indirectly more than de minimis gross revenue through the sale of products or services, or the presentation of any depictions or displays, of a prurient sexual nature.”
Lawyers for the gentlemen's club claim the exclusion violates the First and Fifth amendment rights of legal businesses.
The operators of Michigan’s Little Darlings maintain that “all of the entertainment provided by DV is non-obscene, appeals to healthy human interests and desires, and is in full compliance with the numerous licenses and permits held by DV.”
Little Darlings shut down on March 23, after Michigan Governor Gretchen Whitmer ordered a suspension of all "activities that are not necessary to sustain or protect life.” DV applied for a loan from the $349 billion Paycheck Protection Program (PPP) included in last month's CARES Act.
Although DV had not received an answer about their application by Wednesday, they are suing based on information from "numerous other similar businesses” which had their PPP applications denied by SBA-lending banks.
The “Sex Worker Exclusion” could allow SBA-lending banks’ loan officers, in practice, to operate as a censorship board, making calls about the application of the ancient word “prurient,” which has not been unambiguously defined in either legal or casual use since the Supreme Court used it as a First Amendment litmus test back in 1973.
DV's attorney Bradley J. Shafer of Shafer & Associates PC told legal news site Law360 on Wednesday that loan applications from similar businesses have been handled in a "completely haphazard" way.
"Having some exceptions when you're dealing with regular SBA loans is one thing," he said. "This is a financial catastrophe for the entire country. There are employees at these businesses who could benefit from these type of [loans] just like every other employee at every other small business throughout the country."
The SBA did not respond to a call for clarification by Law360. On April 1, SBA’s spokesperson Mark W. Randle — at the agency’s Office of Disaster Assistance’s Field Operations Center, West — told XBIZ that the language was standard for SBA loans and “did not originate with the CARES Act.”
“It is in accordance with the Code of Federal Regulations (CFR) that governs SBA disaster assistance,” Randle wrote, citing a Clinton-era 1996 document (amended in 1997 and '98).
