ALLENTOWN – A settlement has been finalized between strip club owners in five states, including Pennsylvania, and the U.S. Small Business Administration, over claims that the SBA’s moral judgment about their businesses violated their constitutional rights and caused them to be deprived of receiving loans issued to restaurant and nightlife owners adversely affected by the COVID-19 pandemic.
MAG Enterprises, Inc. and Oasis On Essington, LLC of Philadelphia, Mag Pitt, LP of Pittsburgh, Mag Entertainment, LLC of Gloucester City, N.J., KWLT, LLC of Allentown, KWON, LLC of West Columbia, S.C., BT California, LLC, Gold Club-SF, LLC and S.A.W. Entertainment, LTD of San Francisco, Calif. and Kimmico, Inc. of Baltimore, Md. first filed suit in the U.S. District Court for the Eastern District of Pennsylvania on May 14, versus the U.S. Small Business Administration, its Administrator Isabel Casillas Guzman and the United States of America, all of Washington, D.C.
“This is a civil action wherein plaintiffs seek an immediate, emergency, temporary restraining order, and further injunctive relief, to restrain defendants from violating their constitutional rights by discriminating against businesses and workers who are entitled to benefits from the support for restaurants provisions (the “Restaurant Revitalization Fund” or “RRF”), Section 5003 of Title V, of the recently-enacted American Rescue Plan Act of 2021,” the suit said.
The U.S. Congress created the fund to respond to commercial losses incurred during the COVID-19 pandemic, and to provide grants to restaurants, bars, taverns, and related businesses, assuming they met all stipulations and directed Guzman to authorize grants to eligible recipients.
However the plaintiffs argued that the defendants have moralized against their businesses and their purpose, alleging that the SBA’s rules and regulations unfairly classified them as “prurient” and “obscene” – and violated their constitutional rights, by denying them access to the relief funds.
“The SBA is arbitrarily and without authority incorporating and applying the regulation to prohibit adult entertainment establishments from receiving RRF grants,” the suit said.
“The SBA determines whether a business presents live performances of a prurient sexual nature without having ever visited the establishments or having viewed the live performances at the establishment. Plaintiffs do not present live performances of a prurient sexual nature on their premises. All of the performances on plaintiffs’ premises appeal to normal, healthy sexual desires.”
According to the plaintiffs, their exile from the funds based on the nature of their business violates federal laws and overextends the bounds of the group’s authority.
“The SBA’s actions defy Congress’s words in the statute, exceed the SBA’s authority, contradict the SBA’s enabling act, discriminate against First Amendment-protected businesses, and are otherwise invalid under the Administrative Procedures Act, 5 U.S.C. Section 500 et seq.,” per the suit.
“The SBA’s Program Guides and incorporation of its business loan rules violate businesses’ and workers’ fundamental rights under the First and Fifth Amendments of the United States Constitution and generally exceed the SBA’s authority.”
The plaintiffs filed amended complaints in July and September, before a Dec. 20 judicial order stayed all deadlines in the action.
U.S. District Court for the Eastern District of Pennsylvania Judge Edward G. Smith issued a stipulated order on the status of the case on March 2, extending the stay until the case settlement is finalized.
“Whereas counsel for the parties have advised that they have reached a settlement in principle subject to final documentation and approvals; whereas since Dec. 20, 2021, the Court has approved the parties’ stipulations staying all litigation deadlines until further order; whereas, pursuant to the Court’s order, counsel for the parties advised the Court that, while further progress had been made, they were still working cooperatively to finalize the settlement; Therefore, the stay is extended and, if the parties have not advised the Court that the matter is fully settled beforehand, the parties shall file a joint status report with the Court no later than March 31, 2022,” Smith said.
UPDATE
Smith announced that a settlement had been finalized on June 15. Its terms were not revealed.
“It is ordered that this action is dismissed with prejudice pursuant to agreement of counsel without costs pursuant to rule 41.1(b) of the Local Rules of Civil Procedure of this Court. The Court shall retain jurisdiction for a period of 90 days while the parties await payment by the Small Business Administration and the Clerk of Court shall mark this matter as closed,” Smith said.
The plaintiffs were represented by Arthur Fritzinger of Cozen O’Connor in Philadelphia, plus Bradley J. Shafer, Matthew J. Hoffer and Zachary M. Youngsma of Shafer & Associates, in Lansing, Mich.
The defendants were represented by Matthew E.K. Howatt of the U.S Attorney’s Office, also in Philadelphia, and James Jordan Gilligan of the U.S. Department of Justice, in Washington, D.C.
U.S. District Court for the Eastern District of Pennsylvania case 5:21-cv-02213
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com