613 F.Supp.3d 360
D.D.C.2020Background
- The CARES Act created the Paycheck Protection Program (PPP) to provide up to $349 billion in federally backed, highly favorable loans (low interest, fee waivers, and possible forgiveness) to small businesses during the COVID-19 pandemic.
- 13 C.F.R. § 120.110(r) (a 24-year-old SBA regulation) excludes "businesses primarily engaged in political or lobbying activities" from SBA Section 7(a) loans; Congress did not amend that exclusion when it enacted the PPP.
- Plaintiffs are the American Association of Political Consultants (AAPC) and Ridder/Braden, Inc., a political consulting firm; they sought a TRO/preliminary injunction to prevent SBA enforcement of § 120.110(r) against their PPP applications.
- Plaintiffs claim the regulation (1) imposes an unconstitutional condition on First Amendment rights, (2) is a content-based speech ban subject to strict scrutiny, and (3) violates equal protection principles of the Fifth Amendment.
- The district court held a telephonic hearing and applied the four-factor preliminary-injunction test, concluding plaintiffs failed to meet their burden and denied the TRO/PI.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §120.110(r) is an unconstitutional condition that abridges First Amendment rights | The SBA conditions receipt of PPP funds on foregoing political/lobbying activity, effectively coercing plaintiffs to give up constitutional rights | PPP loans are government spending/subsidies; government may refuse to subsidize speech without violating the First Amendment (Regan line) | Court: Likely not an unconstitutional condition; PPP loans are effectively subsidies and Regan controls, so plaintiffs unlikely to succeed |
| Whether §120.110(r) is a content-based speech ban requiring strict scrutiny | The exclusion disfavors political speech and is content-based, so it must survive strict scrutiny | In the subsidy context the government may make content-based funding choices so long as they are not invidious viewpoint discrimination | Court: Regulation is funding limitation, viewpoint-neutral; does not trigger strict scrutiny; plaintiffs unlikely to succeed |
| Whether §120.110(r) violates Fifth Amendment equal protection principles | The regulation creates an unconstitutional classification based on protected speech and should receive strict scrutiny | Because it restricts only subsidized (federal) funds and is viewpoint-neutral, it survives rational-basis review | Court: Rational-basis review applies; SBA interest in avoiding entanglement/favoritism suffices; plaintiffs unlikely to succeed |
| Whether plaintiffs are entitled to injunctive relief (irreparable harm, equities, SBA injunction bar) | Loss of First Amendment freedoms and financial hardship justify TRO/PI; equities and public interest favor relief | Plaintiffs fail to show likelihood of success, irreparable harm; 15 U.S.C. §634(b)(1) may limit injunctions against SBA | Court: Plaintiffs failed all preliminary-injunction factors (insufficient merit and irreparable harm); court did not definitively resolve §634(b)(1) but noted it casts doubt; TRO/PI denied |
Key Cases Cited
- Regan v. Taxation With Representation of Wash., 461 U.S. 540 (1983) (upholding government refusal to subsidize lobbying; central precedent on spending conditions)
- Ysursa v. Pocatello Educ. Ass'n, 555 U.S. 353 (2009) (government need not facilitate political speech by subsidizing payroll deductions)
- Agency for Int'l Dev. v. All. for Open Soc'y Int'l, Inc., 570 U.S. 205 (2013) (Spending Clause permits conditions on federal funds within limits)
- Davenport v. Wash. Educ. Ass'n, 551 U.S. 177 (2007) (government may make content-based distinctions when subsidizing speech)
- Nat'l Endowment for the Arts v. Finley, 524 U.S. 569 (1998) (funding decisions may allocate on criteria that would be impermissible if direct regulation)
- Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7 (2008) (standard for issuing preliminary injunctions)
- Nken v. Holder, 556 U.S. 418 (2009) (balance of equities and public interest factors merge when government is opposing party)
- Elrod v. Burns, 427 U.S. 347 (1976) (loss of First Amendment freedoms constitutes irreparable injury)
- Mexichem Specialty Resins, Inc. v. EPA, 787 F.3d 544 (D.C. Cir. 2015) (standards for irreparable harm in preliminary-injunction context)