A Review of Camelot Banquet Rooms, Inc. v. United States Small Business Administration, Which Upheld the Use of Content Based Discrimination in Certain Federal Funding
In this new seventh circuit federal case, Camelot Banquet Rooms and about 50 other businesses that offer live nude (or nearly nude) dancing filed suit against the Small Business Administration (“SBA”) for its denial of funding to said businesses under the second round of funding under the Paycheck Protection Program (“PPP”), as authorized by Congress in response to the COVID-19 pandemic. Plaintiffs alleged the decision violated their Free Speech rights under the First Amendment. The Eastern District of Wisconsin had issued a preliminary injunction. The government appealed to the seventh circuit, seeking a stay of the preliminary injunction issued by the court below. The seventh circuit sided with the government, reversing the preliminary injunction instituted by the Eastern District of Wisconsin. Camelot Banquet Rooms, Inc. v. United States Small Business Administration, No. 21-2589 (7th Cir. 2021).
Background: To understand the issue, we must first remember that the “government has no power to restrict expression because of its message, its ideas, its subject matter, or its content,” as Justice John Paul Stevens wrote in his concurrence, in the Supreme Court’s landmark decision, Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221 (1987). 1 In this 1987 decision, the Supreme Court ruled that tax policies which are intended to discriminate against certain types of publications are unconstitutional. This was consistent with previous rulings, notably, Minneapolis Star and Tribune Co. v. Minnesota Commissioner of Revenue (1983), where the Supreme Court struck down Minnesota’s tax exemption on certain printing costs for publishers that spent less than $100,000 on the materials.2
However, in 2009, the Illinois Supreme Court in Pooh-Bah Enterprises, Inc. v. County of Cook, (2009) rejected decades of precedent to decide that content based restrictions in the tax context was perfectly permissible.3 In a slightly ironic turn of events for those familiar with the Illinois judiciary, the Supreme Court largely chose to adopt the framework championed by the late Justice Antonin Scalia in his Ragland dissent.4 By adopting this framework, Illinois became the only state high court to reject First Amendment protection in taxation so far as it applies to content-based discrimination.5
But, as a result of this new Camelot decision, the Illinois Supreme Court is no longer an outlier. When the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) at issue in Camelot was passed in March of 2020, it authorized the PPP landmark legislation which allowed businesses to stay afloat during and after localities issued stay at home orders. The funding program was administered by the SBA. About fifty owners of erotic night clubs determined that they were not eligible for the legislation, since decades-old legislation stated that ventures involved with live dancers of a “prurient sexual nature,” were precluded from obtaining funding from an SBA program.
In turn, these owners sued the SBA in federal court, alleging the regulation is an unconstitutional content-based restriction under the First Amendment. In Camelot Banquet Rooms, Inc., et al. v. United States Small Business Administration (2021) the United States District Court for the Eastern District of Wisconsin agreed with the business owners and issued a preliminary injunction.6 The Seventh Circuit Court of Appeals later granted the government’s stay of the preliminary injunction. The issue before the seventh circuit was whether the district court erred when it granted the preliminary injunction.
Decision: In Camelot, the seventh circuit recognized that the core issue in the case was whether the exclusion amounted to the government penalizing expressive activity which is protected by the First Amendment.7 Nevertheless, the seventh circuit cited to the plurality opinion in Barnes v. Glen Theatre, Inc. (1991), where the United States Supreme Court earlier ruled that nude dancing is “marginally” within the scope of the First Amendment.8
To justify its decision, the seventh circuit distinguished that there is a distinction between unlawful regulation, verses providing subsidies for speech. In Arkansas Writers’ Project, the Court’s analysis largely hinged upon the notion that the tax exemption scheme in question there, did in fact amount to a regulation, and not merely a subsidy.
This same subsidy justification was adopted in a similar fashion by the Illinois Supreme Court in Pooh-Bah over ten years ago, even though the Pooh-Bah case involved a pure tax exemption. Rather than applying the strict scrutiny standard which is generally applied when government regulations impact speech, it solely applied a “rational-relation review” and as a result the opinion includes no analysis of the strict scrutiny standard.9
Finally, the seventh circuit reasoned that when government spending is in question “especially one responding to an economic emergency, it is subject to the least rigorous form of judicial review.”
Conclusion: While the seventh circuit decision does not directly address a state tax issue, it provides an important framework to understand the scope of First Amendment protection when it comes to tax credits, subsidies, or other tax and spend programs. While the seventh circuit’s opinion does not go nearly as far as the Illinois Supreme Court, it does rather extensively rule on the side of the government and provide for a highly deferential standard when it comes to creating potential content-based restrictions.
It is also important to note that this decision does not slam the door shut on this sort of content-based argument in the seventh circuit. The reason for this is that the opinion relies heavily on two pandemic related factors, which might lead to a different outcome depending upon the circumstances. The first is that Congress was responding to an emergency, and the second is that there were numerous other industries excluded, which had nothing to do with First Amendment protection. Perhaps this case raises more questions than it does answers, but it does go to show that the discussion of what content-based restrictions governments can place on speech via taxes and spending programs is far from over.
1. Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221 (1987 (Stevens, J. Concurring).
2. Minneapolis Star and Tribune Co. v. Minnesota Commissioner of Revenue, 460 U.S. 575 (1983).
3. Pooh-Bah Enterprises, Inc. v. County of Cook, 232 Ill. 2d 463, 905 N.E.2d 781 (2009).
4. Stanley Kaminski, “Content-Based Tax Exemptions and the First Amendment,” ISBA Tax Trends, January 2011.
5. Id.
6. Camelot Banquet Rooms, Inc. v. United States Small Business Administration, – F. Supp. 3d –, 2021 WL 3680369 (E.D. Wis. Aug. 19, 2021) .
7. Camelot Banquet Rooms, Inc. v. United States Small Business Administration, No. 21-2589 (7th Cir. 2022).
8. Barnes v. Glen Theatre, Inc., 501 U.S. 560, 565–66 (1991).
9. Madsen v. Women’s Health Center, 512 U.S. 753 (1994).