CHICAGO -- The federal Payroll Protection Program has hit a few bumps in the road since its rollout last month, from blowback over alleged preferential treatment for larger businesses to growing concern over loan forgiveness requirements.
Now it's navigating a legal challenge from adult nightclubs including Chicago's Admiral Theatre alleging the Small Business Administration shut them out of PPP funding.
At issue is a long-standing SBA restriction on loans to businesses that present live performances of a "prurient sexual nature." Lawsuits brought by adult clubs in Illinois, Wisconsin and Michigan argue they should be eligible for federal emergency relief, just like any other small business.
"This is not an adult entertainment issue," said Luke Lirot, a Florida attorney representing the Admiral Theater in the lawsuit, which was filed May 8 in Chicago federal court. "This a guy that sweeps the floor that's not getting a paycheck issue."
On Wednesday, the 7th U.S. Circuit Court of Appeals in Chicago handed the adult nightclubs a major victory, refusing to block a Wisconsin federal court decision that the SBA couldn't deny a PPP loan to a Milwaukee gentlemen's club based solely on the prurient ineligibility standard.
Last week, the 6th Circuit in Cincinnati issued a similar order in a case involving a Flint, Michigan, adult nightclub, which also sued the SBA to become eligible for a PPP loan. In both cases, the SBA had sought to put a hold on the lower court rulings while pursuing the appeals.
"The SBA will follow what the court rules," Andrea Roebker, a spokeswoman for the SBA's Great Lakes Region, said Wednesday.
Both decisions may bode well for the Admiral's lawsuit.
The Admiral has been closed since March 15, as the COVID-19 pandemic and the state's stay-at-home order shuttered nonessential businesses across Illinois.
The Admiral's nearly $407,000 PPP loan application covering 42 employees was submitted to the SBA on April 15, according to the lawsuit. The application has been held up since then, pending an agency ruling on eligibility, the lawsuit alleges.