Momocon, LLC v. Small Bus. Admin.
| Docket Number | Civil Action 21-2386 (RC),Re Document No.: 53,55 |
| Decision Date | 22 December 2023 |
| Parties | MOMOCON, LLC, Plaintiff, v. SMALL BUSINESS ADMINISTRATION, et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Plaintiff MomoCon, LLC (“MomoCon”)[1] began this action against the Defendants, the U.S. Small Business Administration and its Administrator, Isabella Casillas Guzman (collectively “SBA”) seeking review of the SBA's denial of MomoCon's application for Shuttered Venue Operators Grant (“SVOG”) funds. The Court previously granted summary judgment for MomoCon and remanded the case to the SBA. On remand, the SBA denied MomoCon's application for a second time. MomoCon once again moves for summary judgment arguing that the SBA's denial violated the Administrative Procedure Act (“APA”) because the SBA failed to consider relevant factors and reached a decision unsupported by the administrative record. The SBA also moves for summary judgment, asserting that it weighed the factors required by the statute and made a decision supported by substantial evidence. For the reasons stated below, the Court grants the SBA's motion and denies MomoCon's motion.
When COVID-19 forced many live event venues to close, Congress passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act, which established the SVOG program to offer financial relief to shuttered venue operators. See Pub. L. No. 116-260, § 324. Between the initial appropriation and additional funding in the later-passed American Rescue Plan, Congress allocated over $16 billion in grants that were to be administered by the SBA's Office of Disaster Assistance. See id.; Pub. L. No. 117-2, § 5005(a). SVOG is an “emergency assistance” program that stopped accepting new applications on August 20, 2021. Shuttered Venue Operators Grant, U.S. Small Bus. Admin., https://www.sba.gov/funding-programs/loans/covid-19-relief-options/shuttered-venue-operators-grant (last accessed December 22, 2023).
The statute lists several categories of entities that are potentially eligible for a grant, including “live venue operator[s] [and] promoter[s].” 15 U.S.C. § 9009a(a)(1)(A). To fall into that category, an applicant must be “an individual or entity . . . that, as a principal business activity, organizes, promotes, produces, manages, or hosts live concerts, comedy shows, theatrical productions, or other events by performing artists,” for which there is (1) a ticketed entrance charge, (2) performers are paid based on a percentage of sale or guaranteed amount by contract, and (3) not less than 70% of revenue is generated through ticket sales or event beverages, food, or merchandise.[2] Id. § 9009a(a)(3)(A)(i)(I)-(II).
The SBA offered guidance about its approach in a notice inviting SVOG applications, where it explained that:
Principal Business Activity is determined using a firm's primary industry under the SBA size regulations (13 CFR 121.107) to define “principal business activity.” To determine a given firm's principal business activity, the SBA will consider the distribution of an entity's receipts, employees and costs of doing business among the different lines of business activity in which its business operations occurred for the most recently completed fiscal year. The SBA may also consider other factors, such as the distribution of patents, contract awards, and assets, as appropriate.
SBA, Applications for New Awards; Shuttered Venue Operators Grants (SVOG), 86 Fed.Reg. 16270, 16272 (Mar. 26, 2021). And the SBA also stated that when an entity has multiple lines of business, its principal business activity is “the line of business in which the entity has the greatest combined amount of revenues, expenses, employees and work hours, assets, contracts, and other business activity as compared to all its other lines of business.” SBA, Shuttered Venue Operators Grants FAQs, Definition 26 (Oct. 20, 2021), https://www.sba.gov/sites/default/files/2021-10/10- 20-21%20SVOG%20FAQ%20FINAL508final.pdf (last accessed December 22, 2023).
MomoCon produces an annual 4-day anime-themed convention in Atlanta, Georgia.[3] MomoCon “brings together fans of Japanese Anime, American Animation, Comics, Video Games, and Tabletop Games to celebrate their passion by costuming / cosplay, browsing the huge exhibitors hall, meeting celebrity voice talent, designers, and writers behind their favorite shows, games, and comics and much [,] much more over this 4 day event.” See https://www.momocon.com (last accessed December 22, 2023). In addition to the exhibition hall, cosplay opportunities, meet and greets, and gaming, MomoCon also features panel discussions, live musical performances, and theatrical productions. Administrative Record (“AR”), ECF Nos. 65-2, 65-3, 65-4, 65-5, at 56, 1547.[4] MomoCon 2019 ran from May 23 to 26, 2019, with tickets to the event available as either four-day or single-day packages. Id. at 1817. MomoCon 2020 and MomoCon 2021 were both cancelled due to the COVID-19 pandemic.
On April 26, 2021, MomoCon applied as a live venue operator for a SVOG grant of $1,044,330.08. AR 1678. The SBA denied MomoCon's application, and MomoCon submitted an administrative appeal, which the SBA also denied. AR 56; see Second Am. Compl. ¶ 30, ECF No. 48-1.
On September 9, 2021, MomoCon brought this action for judicial review of the SBA's denial of its SVOG assistance request. See Compl., ECF No. 1. The Court approved the SBA's motion for voluntary remand. See Oct. 1, 2021 Order. On October 15, 2021, the SBA issued another denial of MomoCon's application, saying that MomoCon had failed to establish the requisite principal business activity. AR 1696-97, 1700. MomoCon challenged this decision again, and both parties moved for summary judgment.
On February 10, 2022, the Court granted MomoCon's motion for summary judgment and remanded the matter to the SBA. Mem. Op., ECF No. 32. The Court held that the SBA's denial was arbitrary and capricious because the SBA “fail[ed] to explain why it treated MomoCon differently than other potentially similar companies,” id. at 9, and instructed the SBA to “supplement[] the administrative record as necessary regarding MomoCon's competitors,” id. at 20. The Court also directed the SBA to revisit its conclusion that MomoCon did not satisfy the SVOG statute's “principal business activity” requirement, holding that the SBA did not properly consider the record and evidence before the agency. Id. at 16.
On remand, the SBA issued a new decision, dated June 17, 2022, that once more determined that MomoCon was ineligible for SVOG funds. AR 1782-91. The SBA amended the decision on July 15, 2022, and again on August 1, 2022, when it issued the Second Amended Final Remand Decision (“Final Remand Decision”). AR 1795-1804; id. at 1815-24.
The SBA concluded that MomoCon was not eligible for a SVOG award because the record did not show that 70% of MomoCon's earned revenue was attributable to qualifying live events, or that as a principal business activity, MomoCon sold tickets 60 days in advance for qualifying live performing arts events. Id. at 1824. The SBA explained that it followed the definition of principal business activity that is listed on the SBA website. Id. at 1816 ().
In assessing MomoCon's revenue, the SBA observed that MomoCon did not sell tickets to separate events but to the convention as a whole, and so the SBA decided to apportion MomoCon's revenue with reference to the hours of events.[5] Id. at 1822-23. The SBA added up the hours of live performances at MomoCon 2019 based on its review of an archived copy of a schedule for the event, as well as through promotional headliner flyers and the performing artist contracts MomoCon submitted with its application. Id. at 1816-17, 1822-23; see Archived MomoCon 2019 Convention Schedule (“Convention Schedule”) http://web.archive.org/web/20190506064635/https:/www.momocon.com/schedule/ (last accessed December 22, 2023). As the baseline for the total hours of events, the SBA relied on MomoCon's own estimate that it held over 800 hours of programming-a figure that counts simultaneously held events as separate hours. Id. at 1822. Upon its consideration of the record, the SBA calculated that out of these approximately 800 hours, MomoCon 2019 had 24 hours of SVOG eligible live performances.[6] Id. Thus, the SBA determined that these 24 hours accounted for 3% of MomoCon's events, significantly below the 70% threshold required under the SVOG statute. Id. The SBA also considered an alternative scenario where it instead viewed the hours of the convention consecutively, for an assumed total of 60 hours, and found that the 24 hours of eligible live performances would be 40% of the convention time, still below the 70% threshold. Id. at 1822 n.1.
Then, to give MomoCon “the benefit of the doubt” that there were additional eligible events that the SBA missed in its assessment of 24 hours (or 3%), the SBA proceeded with an assumption that a total of 10% of the events were live performing events. Id. at 1822. The SBA applied this percentage to MomoCon's ticket sales revenues. Id. at 1822-23. Again, the SBA noted that this number was well below the SVOG 70% threshold. Id. at 1823. As a result, the SBA determined that MomoCon did not satisfy the criteria for a SVOG grant and denied the application.[7] Id. at 1822-24.
Finally the SBA also responded to...
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