Courts Consider the Constitutionality of PPP Loans Under the CARES Act, Government Shutdown Orders, and Signature Requirements for Getting on the Ballot

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As the pandemic continues, courts are addressing COVID-19-related constitutional challenges. The most recent cases address the eligibility requirements for Paycheck Protection Program loans (“PPP” loans), gubernatorial orders restricting certain businesses and gatherings, and the signature requirements for getting candidates or issues on ballots. Notably, courts addressing the same types of challenges have, in certain cases, reached different conclusions.

PPP loans under the CARES Act

Before the CARES Act, political consultants and lobbyists were ineligible for Small Business Administration (“SBA”) loans. As a result, they also were ineligible to receive PPP loans under the CARES Act.[1] A group of political consultants challenged their exclusion under the First Amendment and Equal Protection Clauses of the US Constitution.[2] On April 21, 2020, a Washington, DC federal court denied the group’s application for a temporary restraining order. It found that the PPP loans are, in effect, “subsidies” because of the: (i) low interests rates, (ii) lack of collateral requirements, (iii) waiver of guarantee fees, and (iv) possibility of loan forgiveness.[3] The court further held that the government can constitutionally choose to stimulate certain industries, and not others, through subsidies.[4] And it found that the SBA regulation “is viewpoint-neutral and does not suppress certain ideas or beliefs in favor others” based upon “their affiliations or viewpoints.”[5]

The court determined that the government needed only to articulate a “rational basis” for treating political consultants differently than other businesses.[6] It then concluded that it was “not irrational” for the government to decide not to utilize “finite resources” to subsidize consultants and lobbyists and for the government to seek to avoid the appearance of partisanship at the SBA.[7]

A group of strip club owners have also asserted, in a Michigan federal court, First Amendment and Equal Protection challenges to regulations barring them from obtaining PPP loans based on their generating revenue from “entertainment of a ‘prurient sexual nature.’”[8] Briefing in that matter is not yet complete.

Restrictions on “non-essential” businesses and gatherings

Several entities have brought constitutional challenges against emergency regulations shutting down “non-essential” businesses or certain gatherings. A state court in Massachusetts rejected an Equal Protection challenge to a business shutdown order brought by non-medical marijuana retailers. They argued that it was unconstitutional to shut their businesses down while allowing medical marijuana and alcohol retailers to remain open.[9] The court held that although these businesses were more or less similarly situated, Massachusetts needed only to offer a “rational basis” for treating non-medical marijuana retailers differently.[10] 

Massachusetts’s “rational basis” was that only a few such retailers were licensed to operate, and neighboring states do not permit non-medical marijuana sales. As a result, there was an increased risk that those few retailers would draw crowds and generate out-of-state travel into Massachusetts, furthering the spread of COVID-19.[11] The court stated that Massachusetts was not required to select the least burdensome method available to accomplish its goals, holding that “[e]conomic rules do not have to be perfectly tailored, even in non-emergency situations.”[12]

A federal court in Ohio rejected a challenge to a shutdown of “non-essential” businesses brought by a bridal shop.[13] It argued that the shutdown order was unconstitutionally vague because the description of “essential” was unclear. But the court held that the order “provides a complete list of all businesses deemed essential.”[14] The bridal shop also argued that the order violated Procedural Due Process because the shop lacked the opportunity to be heard prior to the shutdown. The court found that there is no hearing requirement for government actions of general applicability, however, and determined that to be the case here where the order closed all “non-essential” businesses.[15] Finally, the court rejected the bridal shop’s Equal Protection claim, which was based upon the fact that some businesses—those where two or more counties disagreed about whether the business is “essential”—were entitled to a hearing while others were not. The court found that the limitation on hearings had a rational basis: to ensure that businesses were treated consistently across the state.[16]

A number of religious organizations have challenged governmental restrictions on religious gatherings, with differing results. A federal court in Kansas granted a church’s motion for a temporary restraining order barring enforcement of a governmental order effectively prohibiting gatherings, including religious services, that include more than ten people.[17] The order exempted other types of activities from that limitation, including governmental operations, childcare facilities, hotels, food pantries, libraries, and grocery stores.[18]

The court held that the express prohibition of certain religious gatherings, while exempting other secular activities, fell afoul of the Free Exercise Clause of the First Amendment.[19] The court found that because the regulations targeted religious activities, they were “not facially neutral” and thus subject to “strict scrutiny” review.[20] Under that standard, the regulations failed because they were “not narrowly tailored,” as the regulations permitted similar secular activities to proceed without the same restrictions, despite few “clusters” of COVID-19 infections linked to religious gatherings.[21] The court nonetheless placed some limitations on religious gatherings, including that services not exceed 50 individuals and that the congregants observe social distancing.[22]

But federal courts in New Mexico[23] and Kentucky[24] reached the opposite conclusion on the same issue. They held that orders restricting religious gatherings were neutral and generally applicable because they applied to a wide range of secular activities and did not favor any particular religious group.[25] The courts rejected the argument that the orders were improper because they exempted certain secular businesses.[26] They held that religious services are not similar to the businesses exempted by the order, such as liquor stores and “big box” retailers, because religious services require individuals to “come together at the same time in the same place for the same purpose,” similar to “a movie, concert, or sporting invent,” all of which were temporarily shut down by the government orders.[27]

Signature requirements for election ballots

Litigants have also had differing results when challenging requirements to the number of physical signatures required to get a candidate or issue on an election ballot. The Supreme Court of Massachusetts[28] and a federal court in Michigan[29] both held that the number of signatures required had to be reduced because the burden on prospective candidates or issue proponents outweighed the government’s interest in having a certain number of signatures under the circumstances created by the pandemic. A federal court in Arizona rejected a signature requirement challenge, however, holding that the challengers had not been “reasonably diligent” in collecting signatures prior to the COVID-19 outbreak.[30]

Conclusion

These varying decisions underscore the fact that, as we have previously written, the severity of the current emergency, the length of time governmental restrictions are in effect, and the relation of the governmental restrictions to combating COVID-19 are and will be crucial factors in constitutional challenges.  

 

[1] For more on the PPP loans and the CARES Act, see, e.g., https://www.seyfarth.com/news-insights/covid-19-business-stimulus-funding-update.html.

[2] 2020 U.S. Dist. LEXIS 69782 (D.D.C. Apr. 21, 2020). 

[3] Id. at *9-11.

[4] 2020 U.S. Dist. LEXIS 69782, at *9-11.

[5] Id. at *12-13. 

[6] Id. at *13. 

[7] Id. at *14.

[8] 2020 U.S. Dist. LEXIS 69208 (E.D. Mich. Apr. 20, 2020).

[9] 2020 WL 1903822 (Mass. Sup. Ct. Apr. 16, 2020). 

[10] Id. at *9-10. 

[11] Id. at *10.

[12] Id. at *12.

[13] 2020 WL 1932896 (S.D. Oh. Apr. 21, 2020).

[14] Id.

[15] Id.

[16] Id.

[17] 2020 U.S. Dist. LEXIS 68267 (D. Kan. Apr. 18, 2020).

[18] Id. at *3-4.

[19] Id. at *16-17, *20-21.

[20] Id. at *21.

[21] Id. at *24-25.

[22] Id. at *28-30.

[23] 2020 WL 1905586 (D.N.M. Apr. 17, 2020).

[24] 2020 WL 1909616 (W.D. Ky. Apr. 18, 2020).

[25] 2020 WL 1905586 at *30-34; 2020 WL 1909616 at *2-3.

[26] 2020 WL 1905586 at *39-41; 2020 WL 1909616 at *2-3.

[27] 2020 WL 1909616 at *2-3; see also 2020 WL 1905586 at *39-41.

[28] 2020 Mass. LEXIS 196 (Mass. Apr. 17, 2020).

[29] 2020 U.S. Dist. LEXIS 68254 (E.D. Mich. Apr. 20, 2020).

[30] 2020 U.S. Dist. LEXIS 67696 (D. Az. Apr. 17, 2020).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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