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Strip clubs want piece of coronavirus aid, sue feds

Robert Snell
The Detroit News

Strip club workers are being discriminated against and their employers blocked from a $349 billion emergency lending program designed to help employees and businesses affected by the coronavirus outbreak, according to a federal lawsuit.

A company headed by Jason Mohney, who oversees a national strip club empire, filed the lawsuit Wednesday, exposing a regulation in the federal Paycheck Protection Program that prohibits loans to businesses that provide live performances of a “prurient sexual nature.”

The regulation discriminates against an $8 billion industry that includes thousands of clubs nationwide and more than 57,000 employees at a time when strip clubs have been shuttered during the COVID-19 global pandemic, according to the lawsuit. 

"This is a nightmare," said Mohney, who employs fewer than 500 employees at more than two dozen clubs in Michigan, Nevada, Louisiana, Illinois, Florida, Oklahoma and California, an empire that includes the Déjà Vu and Hustler chains. The lawsuit was filed on behalf of his Flint topless club, Little Darlings, against the U.S. Small Business Administration, SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin.

"People we work with are part of our team, our family, so you start off by telling your family members that they're out of a job and you're not sure when they will get their jobs back," Mohney added. "You work all your life to build something up and in the blink of an eye you're starting all over again."

The pandemic hit a strip club industry that was enjoying a five-year period of growth, according to market research firm IBISWorld.

"It was looking to be one of our best years, going into March, and we were gearing up for St. Patrick's Day," Mohney said. "The economy was good and people were out and about. That's the scariest thing. How long will it be before people are out and about again? There is no real clear path how you come back from something like this."

Amid the industry's growth, Mohney last year bought the $2.3 million home of Marc-Andre Fleury, goaltender for the Vegas Golden Knights in the National Hockey League.

His Flint club closed March 24 as Gov. Gretchen Whitmer's shelter-in-place order took effect. The closing is memorialized on the club's Twitter feed with a tongue-in-cheek tweet featuring a masked woman in a short skirt and the caption: "Sorry we're clothed."

The club could be ruined without an emergency loan, according to the lawsuit.

An SBA spokeswoman declined to comment Friday, citing pending litigation, and referred to the loan program's regulations.

"SBA has determined that financing lawful activities of a prurient sexual nature is not in the public interest," the regulations read. "The lender must consider whether the nature and extent of the sexual component causes the business activity to be prurient."

The SBA program is part of the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law March 27. It makes $349 billion in low-interest loans available, via SBA lenders, to businesses with 500 or fewer employees. Businesses can borrow up to $10 million. The SBA will forgive the loans if the money is used to keep employees on payroll for eight weeks, or if it's used for rent, mortgage interest or utilities.

Last week, the SBA said that nearly 400,000 loans totaling more than $100 billion had been approved.

The Paycheck Protection Program operates on a first-come, first-served basis and boosts eligibility for small businesses and organizations to obtain small-business loans. The club's owner fears the money will be gone soon and has asked U.S. District Judge Matthew Leitman to order banks to disregard the regulation referring to "prurient sexual material."

“From talking to club owners around the country and other lawyers, there are clubs that banks aren’t even letting file applications, and some are being rejected outright,” said Bradley Shafer, attorney for the Little Darlings club. 

According to the program's regulations, lenders can submit a request to SBA for a determination on whether a particular business is eligible for a loan.

The paycheck program's regulations unconstitutionally limit benefits to businesses and workers at strip clubs engaged in jobs protected by the First Amendment, according to the lawsuit.

Fifth Third Bank spokeswoman Beth Oates said the bank is following the federal regulations.

"Fifth Third Bank follows SBA guidelines, which state that businesses that have live performances of a prurient sexual nature are not eligible for (Paycheck Protection Program)," Oates wrote in an email to The Detroit News on Friday. "We must follow SBA guidance for lending decisions related to (Paycheck Protection Program)."

Mohney's club in Flint applied for a loan last Monday and is awaiting a response but believes the application either will be rejected or "fatally delayed," according to the lawsuit.

Mohney’s employees, meanwhile, are struggling since the club closed, he said.

“Depression is setting in from not having work,” he said. “It’s a terrible thing to think about. Work gives them a sense of purpose, so when you eliminate a job, it kind of eliminates some of their sense of purpose. Not going to a job every day is starting to make people crazy.”

Staff Writer Jordyn Grzelewski contributed.