Pharaohs GC, Inc. v. United States Small Business Administration, No. 20-2170 (2d Cir. 2021)

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Justia Opinion Summary

In March 2020, Congress created the Paycheck Protection Program (PPP), which authorized the SBA to guarantee favorable loans to certain business affected by the COVID-19 pandemic. The SBA Administrator promulgated regulations imposing several longstanding eligibility requirements on PPP loan applicants, including that no SBA guarantee would be given to businesses presenting "live performances of a prurient sexual nature." Pharaohs, a business featuring nude dancing, sought a preliminary injunction directing the SBA to give it a PPP loan guarantee.

The Second Circuit affirmed the district court's denial of Pharaoh's motion, holding that the district court did not abuse its discretion in finding that Pharaohs has failed to show that it is substantially likely to succeed on its claims that (1) the SBA exceeded its statutory authority to promulgate eligibility restrictions, and (2) the exclusion of nude-dancing establishments from the Program violates the First or Fifth Amendments. The court need not address the remaining preliminary injunction factors in light of its conclusion.

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20-2170-cv Pharaohs GC, Inc. v. United States Small Business Administration 1 United States Court of Appeals for the Second Circuit 2 3 4 5 6 7 8 9 10 11 12 August Term, 2020 (Argued: November 3, 2020 Decided: March 4, 2021) Docket No. 20-2170-cv _____________________________________ PHARAOHS GC, INC., Plaintiff-Appellant, 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 v. UNITED STATES SMALL BUSINESS ADMINISTRATION, TAMI PERRIELLO, in her Official Capacity as Acting Administrator of the Small Business Administration, UNITED STATES OF AMERICA, JANET YELLEN, in her Official Capacity as United States Secretary of Treasury, Before: Defendants-Appellees. * _____________________________________ LOHIER and PARK, Circuit Judges, and RAKOFF, District Judge. † In March 2020, Congress created the Paycheck Protection Program (“PPP” or “Program”), which authorized the Small Business Administration (“SBA”) to * Under Fed. R. App. P. 43(c)(2), Tami Perriello is automatically substituted for Jovita Carranza in her official capacity as Acting Administrator of the Small Business Administrator and Janet Yellen is automatically substituted for Steve Mnuchin in her official capacity as Secretary of the Treasury. The Clerk of Court is respectfully directed to amend the caption of this matter accordingly. Judge Jed S. Rakoff, United States District Judge for the Southern District of New York, sitting by designation. † 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 guarantee favorable loans to certain businesses affected by the COVID-19 pandemic. The SBA promulgated regulations imposing several longstanding eligibility requirements on PPP loan applicants, including that no SBA guarantee would be given to businesses presenting “live performances of a prurient sexual nature.” Pharaohs GC, Inc. (“Pharaohs”), a business featuring nude dancing, sought a preliminary injunction directing the SBA to give it a PPP loan guarantee. The United States District Court for the Western District of New York (Vilardo, J.) denied the motion. On appeal, Pharaohs argues that the regulation violates the Administrative Procedure Act and the First and Fifth Amendments to the U.S. Constitution. We hold that the district court did not abuse its discretion in finding that Pharaohs has failed to show that it is substantially likely to succeed on its claims that (1) the SBA exceeded its statutory authority to promulgate eligibility restrictions, and (2) the exclusion of nude-dancing establishments from the Program violates the First or Fifth Amendments. We thus AFFIRM. 26 In March 2020, Congress created the Paycheck Protection Program (“PPP” 27 or “Program”), which authorized the Small Business Administration (“SBA”) to 28 guarantee favorable loans to certain businesses affected by the COVID-19 29 pandemic. The SBA Administrator promulgated regulations imposing several 30 longstanding eligibility requirements on PPP loan applicants, including that no STEVEN M. COHEN (William A. Lorenz, Jr., on the brief), Hogan Willig, PLLC, Amherst, New York for Plaintiff-Appellant. COURTNEY L. DIXON (James P. Kennedy, Jr., Michael S. Raab, on the brief), for Jeffrey Bossert Clark, Acting Assistant Attorney General for Defendants-Appellees. PARK, Circuit Judge: 2 1 SBA guarantee would be given to businesses presenting “live performances of a 2 prurient sexual nature.” Pharaohs GC, Inc. (“Pharaohs”), a business featuring 3 nude dancing, sought a preliminary injunction directing the SBA to give it a PPP 4 loan guarantee. The United States District Court for the Western District of New 5 York (Vilardo, J.) denied the motion. 6 regulation violates the Administrative Procedure Act and the First and Fifth 7 Amendments to the U.S. Constitution. We hold that the district court did not 8 abuse its discretion in finding that Pharaohs has failed to show that it is 9 substantially likely to succeed on its claims that (1) the SBA exceeded its statutory 10 authority to promulgate eligibility restrictions, and (2) the exclusion of nude- 11 dancing establishments from the Program violates the First or Fifth Amendments. 12 We thus affirm. I. BACKGROUND 13 14 On appeal, Pharaohs argues that the A. The CARES Act 15 In response to the COVID-19 pandemic, Governor Andrew Cuomo ordered 16 the closure of most “non-essential” businesses in the State of New York. N.Y. Exec. 17 Order 202.8 (Mar. 20, 2020) (“Each employer shall reduce the in-person workforce 18 at any work locations by 100%.”). Later that month, Congress passed the 3 1 Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which 2 created the Paycheck Protection Program, authorizing the SBA to guarantee loans 3 to small businesses affected by the pandemic. Pub. L. No. 116-136, § 1102, 134 Stat. 4 281, 286–94 (2020) (codified at 15 U.S.C. § 636(a)). PPP loans are forgiven to the 5 extent the borrower uses the funds for payroll costs (including group health 6 insurance and other benefits), mortgage interest, rent, or utilities. 15 U.S.C. 7 §§ 636(a)(36)(B), (F), 9005(b). Congress initially authorized $349 billion in loan 8 commitments and added another $310 billion a month later. See CARES Act 9 § 1102(b), 134 Stat. at 293; Paycheck Protection and Health Care Enhancement Act, 10 Pub. L. No. 116-139, § 101(a)(1), 134 Stat. 620, 620 (2020). 1 11 Congress placed the Program under section 7(a) of the Small Business Act, 12 15 U.S.C. § 636(a). The 7(a) loan program is the SBA’s primary program for 13 providing financial assistance to small businesses. Congress authorized the SBA 14 Administrator to guarantee PPP loans “under the same terms, conditions, and 15 processes” as 7(a) loans. Id. § 636(a)(36)(B). Pursuant to the CARES Act, 15 U.S.C. 16 § 9012, the SBA Administrator exercised emergency rulemaking authority to Congress has since allowed for a “second draw” of PPP loans. See Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, § 311, 134 Stat. 1182, 2001–07 (2020). It authorized an additional $147.45 billion, and appropriated $35 billion solely for businesses that have not yet received any PPP loans. Id. § 323(a)(1)(D), (d)(1)(A)(iv), 134 Stat. at 2019–20. 1 4 1 promulgate several interim final rules to “carry out” the Program. 2 As those rules 2 explain, small businesses seeking PPP loans must apply through an approved 3 lender. 85 Fed. Reg. at 20,812. PPP loans are distributed on a “first come, first 4 served” basis until the full amount of the congressionally authorized loan 5 commitment has been met. Id. at 20,813. 6 The rules governing eligibility for PPP loans incorporated longstanding 7 restrictions on eligibility for 7(a) loans. A section of the first interim final rule 8 entitled “How do I determine if I am ineligible?” provides that the types of 9 businesses categorically ineligible for 7(a) loans also are ineligible for PPP loans. 10 Id. at 20,812 (incorporating 13 C.F.R. § 120.110, restrictions on eligibility for certain 11 “types of businesses”). The rule’s sole exception to the adoption of 7(a)’s eligibility 12 restrictions is for nonprofit organizations, which Congress expressly made eligible 13 for PPP loans. See id.; 15 U.S.C. § 636(a)(36)(D)(i) (making nonprofit organizations 14 eligible for PPP loans). Thus, the “types of businesses” that are not eligible for PPP 15 loans 16 “[s]peculative businesses (such as oil wildcatting),” businesses with an associate include foreign businesses, “[p]yramid sale distribution plans,” See, e.g., Paycheck Protection Program, 85 Fed. Reg. 20,811 (Apr. 15, 2020); Paycheck Protection Program—Additional Eligibility Criteria and Requirements for Certain Pledges of Loans, 85 Fed. Reg. 21,747 (Apr. 20, 2020); Paycheck Protection Program—Requirements— Promissory Notes, Authorizations, Affiliation, and Eligibility, 85 Fed. Reg. 23,450 (Apr. 28, 2020). 2 5 1 indicted for a felony or crime of moral turpitude, “[b]usinesses primarily engaged 2 in political or lobbying activities,” and, as relevant here, businesses that “[p]resent 3 live performances of a prurient sexual nature—i.e., the “prurience restriction.” 13 4 C.F.R. § 120.110. 5 B. Facts and Procedural History 6 Pharaohs is a “gentlemen’s club” outside Buffalo, New York, that features 7 nude dancing. It closed to customers on March 15, 2020, and has stayed closed in 8 compliance with Governor Cuomo’s orders. Pharaohs applied for a PPP loan of 9 $345,067.50 through Live Oak Bank to pay wages to its 76 employees, among other 10 expenses. An underwriter at Live Oak Bank informed Pharaohs that its loan 11 application would be rejected because Pharaohs, as a business providing live 12 entertainment of a prurient sexual nature, is not eligible to participate in the 13 Program. 14 Pharaohs filed this action in the U.S. District Court for the Western District 15 of New York, alleging that the eligibility restriction is inconsistent with the CARES 16 Act and violates its constitutional rights and seeking injunctive, declaratory, and 17 monetary relief. Pharaohs also moved for a temporary restraining order and 18 preliminary injunction. The SBA agreed to reserve $345,067.50 in PPP funds 6 1 pending resolution of the motion for a preliminary injunction, so Pharaohs 2 withdrew the motion for a temporary restraining order. Live Oak Bank has placed 3 Pharaohs’s application on hold pending the outcome of this case. 4 Pharaohs contended that (1) the prurience restriction is unlawful under the 5 Administrative Procedure Act (“APA”), 5 U.S.C. § 706(2)(C), because it is 6 inconsistent with the CARES Act; and (2) the restriction violates the First and Fifth 7 Amendments by burdening nude dancing, a protected form of expression. 8 Pharaohs alleged that “there is a high likelihood that the business will fail without 9 the PPP funding.” App’x at 62. Pharaohs asked the court to enjoin the SBA “from 10 making eligibility determinations and withholding funding under the PPP due to 11 the fact that the Plaintiff’s business is involved in adult entertainment” and to 12 direct the SBA “to transmit loan guarantee authority to Live Oak Bank.” Id. at 36– 13 37. 14 The district court denied the motion, concluding that “Pharaohs has not 15 shown—let alone clearly shown—that it is likely to succeed on the merits of its 16 claim.” Pharaohs GC, Inc. v. U.S. Small Bus. Admin., No. 20-cv-655, 2020 WL 17 3489404, at *3 (W.D.N.Y. June 26, 2020). Pharaohs now appeals that decision. We 18 have jurisdiction under 28 U.S.C. §§ 1292(a)(1), 1331 and 15 U.S.C. § 634(b)(1). 7 II. DISCUSSION 1 2 A. Standard of Review 3 To demonstrate that a preliminary injunction should be entered in its favor, 4 Pharaohs “must establish [1] that [it] is likely to succeed on the merits, [2] that [it] 5 is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the 6 balance of the equities tips in [its] favor, and [4] that an injunction is in the public 7 interest.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). Furthermore, 8 because Pharaohs “seeks a preliminary injunction that will alter the status quo,” it 9 must “demonstrate a ‘substantial’ likelihood of success on the merits.” N.Y. 10 Progress & Prot. PAC v. Walsh, 733 F.3d 483, 486 (2d Cir. 2013) (citation omitted). 11 We review the denial of a preliminary injunction for abuse of discretion. Id. 12 “Such an abuse occurs when the district court bases its ruling on an incorrect legal 13 standard or on a clearly erroneous assessment of the facts.” Bronx Household of 14 Faith v. Bd. of Educ., 331 F.3d 342, 348 (2d Cir. 2003). 15 B. Likelihood of Success on the Merits: APA Claim 16 Pharaohs first argues that the SBA’s exclusion of adult-entertainment 17 venues from the Program is inconsistent with the CARES Act. This argument is 8 1 unlikely to succeed because Congress gave the SBA Administrator discretion to 2 exclude certain types of businesses from the Program. 3 The CARES Act states that “the Administrator may guarantee [PPP] loans 4 under the same terms, conditions, and processes” as a 7(a) loan “except as 5 otherwise provided.” 15 U.S.C. § 636(a)(36)(B). And Congress provided for 6 “[i]ncreased eligibility for certain small businesses and organizations” in 7 subparagraph D of the Program. That provision states: 8 9 10 11 12 13 14 15 16 [I]n addition to small business concerns, any business concern [or] nonprofit organization . . . shall be eligible to receive a [PPP] loan if the business concern [or] nonprofit organization . . . employs not more than the greater of-(I) 500 employees; or (II) if applicable, the size standard in number of employees established by the Administration for the industry in which the business concern [or] nonprofit organization . . . operates. Id. § 636(a)(36)(D)(i). 17 Pharaohs argues that “any business concern . . . shall be eligible” means that 18 every “business concern” with no more than 500 employees is eligible for PPP 19 loans. Based on this broad wording, Pharaohs charges that the Administrator 20 overstepped her authority under the CARES Act by excluding nude-dancing 21 establishments from the Program. Thus, Pharaohs concludes that we must “hold 9 1 unlawful and set aside” the Administrator’s action because it was “in excess of 2 statutory jurisdiction, authority, or limitations.” 5 U.S.C. § 706(2)(C). 3 To review whether an interim final rule exceeds the authority conferred by 4 statute, we apply the two-step framework set forth in Chevron U.S.A., Inc. v. 5 Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). See United States v. Mead 6 Corp., 533 U.S. 218, 227, 230–31 (2001) (advising that “rules carrying the force of 7 law” are subject to the Chevron framework even when, as with interim final rules, 8 such rules were promulgated without the aid of notice and comment). Deference 9 under Chevron “is not due unless a ‘court, employing traditional tools of statutory 10 construction,’ is left with an unresolved ambiguity.” Epic Sys. Corp. v. Lewis, 138 11 S. Ct. 1612, 1630 (2018) (quoting Chevron, 467 U.S. at 843 n.9). And as the Supreme 12 Court has explained in a related context, “a court must exhaust all the ‘traditional 13 tools’” before concluding that there is a genuine ambiguity. Kisor v. Wilkie, 139 14 S. Ct. 2400, 2415 (2019). 15 We reject Pharaohs’s argument because the CARES Act unambiguously 16 gives the Administrator discretion to adopt the longstanding “terms, conditions, 17 and processes” of the 7(a) program. 18 business concern . . . shall be eligible” is not to the contrary when read in its Subparagraph D’s statement that “any 10 1 statutory context—specifically, its foundation in the Small Business Act’s 7(a) loan 2 program. “It is a fundamental canon of statutory construction that the words of a 3 statute must be read in their context and with a view to their place in the overall 4 statutory scheme.” Davis v. Mich. Dep’t of Treasury, 489 U.S. 803, 809 (1989). “A 5 provision that may seem ambiguous in isolation is often clarified by the remainder 6 of the statutory scheme—because the same terminology is used elsewhere in a 7 context that makes its meaning clear or because only one of the permissible 8 meanings produces a substantive effect that is compatible with the rest of the law.” 9 United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371 10 (1988) (citations omitted). 11 “[T]he PPP was not created as a standalone program but was added into the 12 existing § 7(a) program, which subjects it to existing conditions and regulations, 13 as well as existing SBA authority.” In re Gateway Radiology Consultants, P.A., 983 14 F.3d 1239, 1256 (11th Cir. 2020). Reading subparagraph D in the context of the 15 SBA’s 7(a) loan program, it is clear that Pharaohs’s interpretation—i.e., “any 16 business concern” means “every business concern”—is not tenable. 17 First, under Pharaohs’s reading, the Administrator would be unable to 18 exclude certain businesses from the Program, which would render several 11 1 provisions of the CARES Act superfluous. For example, if the Administrator could 2 not base eligibility on a small business’s collateral or the businessowner’s personal 3 guarantee, there would be no reason for the CARES Act to lift SBA regulations 4 requiring collateral and a personal guarantee. See 15 U.S.C. § 636(a)(36)(J). So too 5 with the provision making some affiliates eligible, id. § 636(a)(36)(D)(iv), and the 6 provision waiving the usual requirement that the business not be able to obtain 7 credit elsewhere, id. § 636(a)(36)(I). “[A] statute should be construed so that effect 8 is given to all its provisions, so that no part will be inoperative or superfluous, 9 void or insignificant.” Corley v. United States, 556 U.S. 303, 314 (2009) (cleaned up); 10 see also In re Gateway Radiology Consultants, 983 F.3d at 1258 (“[I]t would be illogical 11 to conclude that this subsection of the CARES Act sets size as the one and only 12 requirement for PPP eligibility . . . because other sections of the CARES Act waive 13 or relax for PPP loans other § 7(a) requirements.”). 14 Second, Congress enacted the Program on the foundation of the SBA’s 7(a) 15 loan program, excluding some eligibility limits but not the prurience restriction. 16 We presume that Congress legislates against the backdrop of existing law. See 17 Garcia v. Teitler, 443 F.3d 202, 207 (2d Cir. 2006). Here, the context in which 18 Congress created the Program included longstanding regulatory limits on SBA 12 1 loan eligibility, such as the prurience restriction. For example, the CARES Act 2 expressly includes nonprofit organizations—the very first type of business 3 excluded under the existing 7(a) program rules. See 15 U.S.C. § 636(a)(36)(A)(vii), 4 (D)(i); 13 C.F.R. § 120.110(a). But Congress did not similarly clarify its intent to 5 include adult-entertainment businesses in the Program (or foreign businesses, 6 lobbyists, illegal businesses, or oil wildcatters). 7 Congress deliberately chose not to change the Administrator’s statutory discretion 8 to exclude businesses, other than those it expressly identified in the CARES Act. 9 Cf. Jama v. Immigr. & Customs Enf’t, 543 U.S. 335, 342 (2005) (“We do not lightly 10 assume that Congress has omitted from its adopted text requirements that it 11 nonetheless intends to apply, and our reluctance is even greater when Congress 12 has shown elsewhere in the same statute that it knows how to make such a 13 requirement manifest.”). This strongly suggests that 14 Subparagraph D must be understood as simply raising the employee 15 threshold defining eligibility for small business relief to 500 and including a few 16 other kinds of employers in the Program, like nonprofit organizations and sole 13 1 proprietors. 3 It does not require the Administrator to make eligible all businesses 2 below that threshold. Indeed, the CARES Act expressly gives the Administrator 3 the general authority to adopt the “same terms, conditions, and processes” for PPP 4 loans as for 7(a) loans. 15 U.S.C. § 636(a)(36)(B). 4 5 Finally, even if subparagraph D were ambiguous, the Administrator would 6 still prevail because the SBA’s interpretation is reasonable. “The question for the 7 reviewing court at Chevron Step Two is whether the agency’s answer to the 8 interpretive question is based on a permissible construction of the statute.” Catskill 9 Mountains Chapter of Trout Unlimited, Inc. v. EPA, 846 F.3d 492, 520 (2d Cir. 2017) 10 (cleaned up). It is a permissible construction of subparagraph D to situate its use 11 of the phrase “any business concern” within the limits imposed by its statutory Congress crafted subparagraph D against the backdrop of detailed, industry-specific “size standards defin[ing] whether a business entity is small and, thus, eligible for Government programs and preferences reserved for ‘small business’ concerns,” such as the 7(a) loan program. 13 C.F.R. § 121.101. For many industries, businesses with 500 employees (or fewer) are not considered small businesses, whether because the cutoff is much lower than 500 employees or because the standard is based on a business’s revenue instead of its number of employees. See id. For Program eligibility, however, Congress enlarged the definition of a small business also to include other “business concerns” that have no more than 500 employees. 15 U.S.C. § 636(a)(36)(D)(i). 3 In DV Diamond Club of Flint, LLC v. Small Business Administration, 960 F3d 743 (6th Cir. 2020), on which Pharaohs relies, the Sixth Circuit addressed the same issue, but in a different context. There, the district court had granted an injunction in favor of the adult-entertainment venue. Id. at 746. Thus, the government bore the burden of showing its entitlement to injunctive relief. Id. Pharaohs bears that burden here. 4 14 1 and regulatory context. See Util. Air Regulatory Grp. v. EPA, 573 U.S. 302, 321 (2014) 2 (acknowledging the importance of statutory context at Chevron Step Two). 3 C. Likelihood of Success on the Merits: Constitutional Claims 4 Pharaohs also contends that the SBA’s exclusion of businesses from the 5 Program based on the prurience restriction violates its equal protection and First 6 Amendment rights. Pharaohs appears to offer three different theories as to why it 7 believes the prurience restriction is unconstitutional. First, Pharaohs says that the 8 restriction impermissibly regulates protected speech. Second, Pharaohs suggests 9 that the restriction would fail rational-basis review because its impermissible 10 purpose is to exclude businesses expressing a disfavored message from a program 11 that was created to assist all small businesses. Finally, Pharaohs contends that the 12 prurience restriction is unconstitutional viewpoint discrimination. We are not 13 persuaded by these arguments and conclude that Pharaohs is unlikely to succeed 14 on the merits of its constitutional claims. Regulation of Expression 15 1. 16 First, the Program’s prurience restriction is not subject to strict scrutiny 17 because, with exceptions not satisfied here, restrictions on government subsidies 18 are subject to less demanding review. 15 1 Although nude dancing “is expressive conduct protected by the First 2 Amendment,” Barnes v. Glen Theatre, Inc., 501 U.S. 560, 565 (1991) (plurality 3 opinion), it “falls only within the outer ambit of the First Amendment’s 4 protections,” City of Erie v. Pap’s A.M., 529 U.S. 277, 289 (2000) (plurality opinion). 5 Nude dancing thus involves “only the barest minimum of protected expression.” 6 Doran v. Salem Inn, Inc., 422 U.S. 922, 932 (1975). 7 Pharaohs contends that the Administrator “seeks to regulate speech of 8 private businesses” in violation of the Constitution. Appellant’s Br. at 30. 9 Pharaohs’s argument appears to turn on the distinction between permissible 10 funding conditions that set the scope of a government subsidy and funding 11 conditions that amount to backdoor regulation of speech. 12 The general rule is that “when the Government appropriates public funds 13 to establish a program it is entitled to define the limits of that program.” Rust v. 14 Sullivan, 500 U.S. 173, 194 (1991). But “the government may not deny a benefit to 15 a person on a basis that infringes his constitutionally protected freedom of 16 speech.” Agency for Int’l Dev. v. All. For Open Soc’y Int’l, Inc., 570 U.S. 205, 214 (2013) 17 (cleaned up). 18 conditions that “specify the activities Congress wants to subsidize” unless those In other words, the government may set funding terms and 16 1 terms and conditions “seek to leverage funding to regulate speech outside the 2 contours of the program itself.” Id. at 214–15; see Rust, 500 U.S. at 197 (rejecting 3 challenge to subsidy program that did not “effectively prohibit[] the recipient[s] 4 from engaging in the protected conduct outside the scope of the federally funded 5 program”). 6 The prurience restriction at issue here excludes certain types of businesses 7 from eligibility for PPP loans—it does not directly regulate speech. The prurience 8 restriction is thus part of a selective subsidy program. In Regan v. Taxation With 9 Representation of Washington, 461 U.S. 540 (1983), the Supreme Court held that the 10 exclusion of lobbying organizations from the tax exemption for nonprofits did not 11 violate the First Amendment. Id. at 549 (explaining that the “decision not to 12 subsidize the exercise of a fundamental right does not infringe the right, and thus 13 is not subject to strict scrutiny”). The Court concluded that the tax exemption was 14 a subsidy because it had “much the same effect as a cash grant.” Id. at 544. And 15 the “selection of particular entities or persons for entitlement to this sort of largesse 16 ‘is obviously a matter of policy and discretion not open to judicial review unless 17 in circumstances which here we are not able to find.’” Id. at 549 (citations omitted). 17 1 In its motion for mandatory injunctive relief, Pharaohs has not made the 2 necessary “clear showing” that the restriction at issue here improperly leverages 3 the subsidy to regulate speech. Tom Doherty Assocs., Inc. v. Saban Entm’t, Inc., 60 4 F.3d 27, 34 (2d Cir. 1995) (quoting Abdul Wali v. Coughlin, 754 F.2d 1015, 1025 (2d 5 Cir. 1985)). As with the subsidy in Regan, PPP loans are broadly available, but the 6 government has decided not to subsidize certain types of businesses, even if they 7 engage in constitutionally protected activities. The government does not violate a 8 plaintiff’s rights “by declining to subsidize its First Amendment activities.” Regan, 9 461 U.S. at 548. “The Court has never held that Congress must grant a 10 benefit . . . to a person who wishes to exercise a constitutional right.” Id. at 545. 11 Likewise, there is no indication that the restriction here “was intended to 12 suppress” protected conduct. Id. at 548; see id. (“The case would be different if 13 Congress were to discriminate invidiously in its subsidies in such a way as to aim 14 at the suppression of dangerous ideas.” (internal quotation marks omitted)). And 15 while a funding restriction might also be unconstitutional if it regulates a 16 recipient’s speech outside of the government program, see FCC v. League of Women 17 Voters of Cal., 468 U.S. 364, 399–400 (1984), Pharaohs has failed to articulate how 18 the prurience restriction does so here. 18 1 We thus hold that the district court did not abuse its discretion by declining 2 to apply strict scrutiny to the government’s decision to exclude certain entities 3 from receiving subsidies under the Program. Legitimate Government Interest 4 2. 5 The government’s decision not to subsidize certain activities need only 6 “bear a rational relation to a legitimate government purpose.” Regan, 461 U.S. at 7 547 (applying rational-basis review to, as here, a challenge to a selective subsidy 8 under both the Free Speech and Equal Protection Clauses); accord Boy Scouts of Am. 9 v. Wyman, 335 F.3d 80, 91–92, 97 (2d Cir. 2003). We thus apply rational-basis 10 review to the Administrator’s exclusion of nude-dancing establishments from the 11 Program. Although the rational-basis standard is “not meant to be toothless,” it 12 provides no “license for courts to judge the wisdom, fairness, or logic of legislative 13 choices.” Winston v. City of Syracuse, 887 F.3d 553, 560 (2d Cir. 2018) (internal 14 quotation marks omitted). 15 The Administrator asserts that the exclusion of businesses presenting live 16 performances of a prurient sexual nature is rationally related to the government’s 17 legitimate interest in prioritizing its finite resources. This account mirrors the 18 rationale the SBA gave when it first proposed the exclusion of such businesses 19 1 from 7(a) loans. In its 1995 notice of proposed rulemaking, the SBA justified the 2 exclusion of lawful but prurient businesses as consistent with its “obligation to 3 direct its limited resources and financial assistance to small businesses in ways 4 which will best accomplish SBA’s mission, serve its constituency, and serve the 5 public interest.” Business Loan Programs, 60 Fed. Reg. 64,356, 64,360 (Dec. 15, 6 1995). Although the prioritized distribution of finite resources is a legitimate 7 government interest, this rationale does not explain why there is an interest in 8 deprioritizing businesses featuring nude dancing. 9 It is the movant’s burden, however, to negate the bases that “might support” 10 the regulation. Sensational Smiles, LLC v. Mullen, 793 F.3d 281, 284 (2d Cir. 2015) 11 (quoting Heller v. Doe, 590 U.S. 312, 320 (1993)). Pharaohs asserts that “the only 12 apparent purpose for this regulation is to exclude small businesses that express a 13 disfavored message from programs that were created to assist all small 14 businesses.” Appellant’s Br. at 23 (quoting Camelot Banquet Rooms, Inc. v. U.S. 15 Small Bus. Admin., 458 F. Supp. 3d 1044, 1061 (E.D. Wis. 2020)). But Pharaohs fails 16 to acknowledge that legitimate interests may be served by the government’s 17 decision not to subsidize adult-entertainment venues. See, e.g., City of Renton v. 18 Playtime Theaters, Inc., 475 U.S. 41, 47–49 (1986) (holding that local governments 20 1 may enact zoning ordinances against adult movie theaters to curb negative 2 “secondary effects”); Paris Adult Theater I v. Slaton, 413 U.S. 49, 63 (1973) 3 (recognizing the government’s legitimate interest in curbing the “debas[ing]” 4 influence of “commercial exploitation of sex”). 5 On the limited record before us, Pharaohs has not shown that the SBA’s 6 decision to exclude adult-entertainment venues from receiving limited CARES Act 7 funds lacks a rational relationship to any legitimate government interest. Regan, 8 461 U.S. at 547. For purposes of a preliminary injunction, we conclude that 9 Pharaohs is unlikely to demonstrate a violation of its constitutional rights. Viewpoint-Based Discrimination 10 3. 11 Pharaohs also contends that the exclusion of businesses hosting “live 12 performances of a prurient sexual nature” is unconstitutional viewpoint-based 13 discrimination. 5 It argues that nude dancing illustrates the viewpoint “that lust or 14 sexual desire is good” and that the SBA’s refusal to fund nude-dancing The question whether a spending condition discriminates based on viewpoint is not unrelated to, and in some cases may be duplicative of, the question of whether the condition is functionally a regulation of speech, because subsidies “aimed at the suppression of dangerous ideas,” Regan, 461 U.S. at 550, will often adopt viewpoint-based classifications. See, e.g., Nat’l Endowment for the Arts v. Finley, 524 U.S. 569, 587 (1998) (describing government “leverag[ing] its power to award subsidies” as a means of viewpoint discrimination); Boy Scouts, 335 F.3d at 91–92 (same). 5 21 1 establishments is a viewpoint-based classification instead of a content-based one. 2 Appellant’s Br. at 33. We disagree: “prurient” describes a type of content, not a 3 viewpoint. 4 In General Media Communications, Inc. v. Cohen, 131 F.3d 273 (2d Cir. 1997), 5 we upheld a prohibition against the sale on military bases of material, “the 6 dominant theme of which depicts or describes nudity . . . in a lascivious way.” Id. 7 at 282. This is because “lasciviousness” is a content-based distinction describing 8 the subject of the prohibition. Id. at 281–82, 287–88 (quoting 10 U.S.C. § 2489a(d)). 9 We thus rejected the argument that lasciviousness is a viewpoint (or that a 10 classification based on lasciviousness targets a viewpoint). Id. at 282 (asking how, 11 “for example, would one go about discussing and considering the political issues 12 of the day from a lascivious viewpoint?”). 13 The same considerations govern a classification based on “prurience.” The 14 word “prurient” operates in the SBA’s regulation to describe the subject matter— 15 or content—of businesses excluded from SBA loans. Businesses that present live 16 performances are excluded if the nature of those performances is prurient. See 13 17 C.F.R. § 120.110(p). The restriction does not describe a viewpoint; one could not 18 have a prurient view of American policy in the Middle East or antitrust regulation, 22 1 for example. Indeed, the Supreme Court has treated prurience as a content-based 2 restriction, suggesting in dicta that “prurience and patent offensiveness are . . . 3 permissible grounds on which to discriminate—and by implication, they do not 4 constitute ‘viewpoints.’” Gen. Media, 131 F.3d at 282 (discussing R.A.V. v. City of 5 St. Paul, 505 U.S. 377, 388 (1997)). We thus find that Pharaohs is unlikely to succeed 6 in arguing that its exclusion from the Program violates its constitutional rights. 7 D. Remaining Injunction Factors 8 In the absence of the necessary “clear or substantial” showing of Pharaohs’s 9 likelihood of success on the merits, the district court properly exercised its 10 discretion to deny preliminary relief. Tom Doherty Assocs., 60 F.3d at 33. The court 11 did not—and did not need to—address the remaining preliminary injunction 12 factors. A district court may grant a mandatory injunction against the government 13 “only if it determines that, in addition to demonstrating irreparable harm, the 14 moving party has shown a ‘clear’ or ‘substantial’ likelihood of success on the 15 merits.” Libertarian Party of Conn. v. Lamont, 977 F.3d 173, 176–77 (2d Cir. 2020) 16 (quoting Mastrovincenzo v. City of New York, 435 F.3d 78, 89 (2d Cir. 2006)). Thus, 17 even if Pharaohs were able to carry its burden of showing that it would go out of 23 1 business without the injunction, its failure to show a clear or substantial likelihood 2 of success on the merits stands in the way of any preliminary relief. 3 4 III. CONCLUSION For the reasons set forth above, the district court’s judgment is affirmed. 24
Primary Holding
The Second Circuit affirmed the district court's denial of Pharaohs' motion for a preliminary injunction directing the SBA to give it a Paycheck Protection Program loan guarantee during the COVID-19 pandemic.

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