14 F.4th 624
7th Cir.2021Background
- ~50 businesses that offer live adult (nude or nearly nude) dancing were statutorily excluded from the second round of the Paycheck Protection Program (PPP) by Congress’ incorporation of 13 C.F.R. §120.110(p) into 15 U.S.C. §636(a)(37).
- Plaintiffs sued, claiming the exclusion violates the First Amendment (free speech), and the district court granted a preliminary injunction ordering the SBA not to deny them PPP eligibility.
- The SBA appealed and sought a stay of the injunction; the district court denied a stay, and the Seventh Circuit issued a temporary stay and then granted a stay pending appeal while ordering expedited briefing.
- The Seventh Circuit panel held that because Congress incorporated the regulatory exclusion into statute for the second round, the dispute is purely constitutional; statutory/administrative-law challenges from the first round no longer control.
- The court concluded at this stage the government has a strong likelihood of success: denial of a subsidy is distinct from speech regulation, prurience is a subject-matter classification (not viewpoint), and rational-basis review governs.
- The panel found other stay factors (irreparable harm, balance of harms, public interest) neutral or favoring the government, so the injunction was stayed and merits briefing expedited.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether excluding adult-entertainment businesses from PPP violates the Free Speech Clause | Exclusion penalizes protected expressive conduct (nude dancing) and functions as suppression | Denial of a subsidy is not regulation of speech; government may refuse to fund protected expression | Stay granted; likely gov't success — subsidy refusal does not trigger heightened First Amendment protection |
| Whether the exclusion constitutes viewpoint discrimination / suppression of "dangerous ideas" | Congress targeted sexual ideas (prurience) to suppress disfavored expression | The exclusion targets subject matter (prurient live performances), not viewpoint; no evidence of viewpoint animus | Held: prurience is subject-matter classification, not viewpoint discrimination; Regan/R.A.V. framework favors gov't |
| Whether the exclusion fails rational-basis review (over-/under-inclusiveness) | Classification is arbitrary and under-/over-inclusive; Congress lacked contemporaneous record | Emergency spending and political compromises need only some conceivable rational basis (e.g., secondary effects, political support) | Held: rational-basis review applies; courts accept conceivable rationales without legislative record; classification survives |
| Whether the preliminary injunction should be stayed pending appeal (irreparable harm, balance, public interest) | Plaintiffs: denial of relief causes business closures and irreparable harm; public interest favors relief | Gov't: irretrievable fiscal consequence if wrongly ordered to guarantee loans; public interest favors enforcing congressional policy given likely success | Held: factors neutral or favor gov't; gov't's strong likelihood on merits tips balance — stay granted and briefing expedited |
Key Cases Cited
- Ysursa v. Pocatello Education Ass’n, 555 U.S. 353 (2009) (government may decline to subsidize protected speech)
- Rust v. Sullivan, 500 U.S. 173 (1991) (government may selectively fund programs to encourage certain activities)
- Regan v. Taxation With Representation, 461 U.S. 540 (1983) (legislature’s decision not to subsidize exercise of a right does not infringe the right)
- R.A.V. v. City of St. Paul, 505 U.S. 377 (1992) (distinguishing subject-matter exclusions from viewpoint discrimination)
- City of Erie v. Pap’s A.M., 529 U.S. 277 (2000) (recognition of secondary effects doctrine for sex-oriented businesses)
- Heller v. Doe, 509 U.S. 312 (1993) (rational-basis review requires only conceivable legitimate purpose)
- Dandridge v. Williams, 397 U.S. 471 (1970) (acceptance of imperfect fit under rational-basis review)
- Metropolis Theatre Co. v. City of Chicago, 228 U.S. 61 (1913) (practical accommodations and imperfect fit tolerable under rational review)