Goff Corporation, No. 3746 (March 25, 1993).
Docket NO. SIZ-93-1-19-4


                    UNITED STATES OF AMERICA

                  SMALL BUSINESS ADMINISTRATION

                 OFFICE OF HEARINGS AND APPEALS

                        WASHINGTON, D.C.


SIZE APPEAL OF:               )
                              )
Goff Corporation              )
                              )
     Appellant                )    Docket No. SIZ-93-1-19-4
                              )
Recertification Application   )
06-SD-93-007                  )
Dallas Regional Office        )

                             DIGEST
                                
Where the Appellant is an operating division of an incorporated
concern which is owned and controlled by its parent concern, the
Regional Office was correct in treating these concerns as affili
ated and including all of their respective employees in the
computation of the aggregate average number of employees of the
Appellant and its affiliates pursuant to 13 CFR 121.407(a).

                            DECISION

                        February 25, 1993

COLE, Administrative Judge, Presiding:

Jurisdiction

This appeal is decided under the Small Business Act of 1958, 15
U.S.C. 632 et seq., and the regulations codified at 13 CFR Part
121.

Issue

Whether the Regional Office was in error in finding the
Appellant, an operating division of a subsidiary concern, to be
affiliated with the parent concern for purposes of computing the
average number of employees of the Appellant and its affiliates.

Facts

The Office of Hearings and Appeals (OHA) in the Size Appeal of
Goff Corporation, No. 3689, issued October 6, 1992, affirmed the
August 11, 1992 size determination of the Dallas Regional Office
which found Goff Corporation (Goff or Appellant) other than small
under the 500-employee size standard. The size determination
turned on Goff's failure to provide evidence to overcome allega
tions that Goff was affiliated with a large foreign concern with
a combined average number of employees exceeding the size
standard. In sustaining the Regional Office, we noted that Goff
could pursue its relief through the recertification process set
forth at 13 CFR 121.1607.

On November 23, 1992, the Dallas Regional Office received Goff's
application for recertification. The Regional Office, in a deter
mination dated December 14, 1992, denied Goff's request, noting,
inter alia:

     This request [for recertification] was predicated on a size
     determination...holding Goff Corporation to be other than
     small through affiliation with George Fischer Foundry
     Systems, a subsidiary of George Fischer Corporation which,
     in turn, is a subsidiary of George Fisher AG/George Fischer
     Ltd., a Swiss corporation.  Goff now identifies itself as a
     division of George Fischer Foundry Systems, Inc. Other known
     subsidiaries of George Fischer Corporation are George
     Fischer Signet and Signet Scientific.

After citing the recertification regulation, which requires the
applicant to submit, inter alia, "information sufficient to show
a significant change in its ownership, management, contractual
relations, or other factors bearing on its status as a small
concern," the Regional Office considered the evidence and Goff's
arguments, which it described as follows:

     Goff argues that its purchase by Fischer should not have
     changed its small business size standard since it is managed
     independently from George Fischer Ltd. (GF Ltd.) and without
     interference from the latter in their daily business and/or
     long term business planning and strategies. Goff then
     presents a series of arguments ...includ[ing]: (1) the fact
     the two companies have executed a set of Business
     Regulations which details the managerial relationship with
     the independence from GF Ltd.; (2) the fact that the
     Appellant is responsible for the performance of all
     contracts to which it is a party and is solely liable for
     its debts and obligations without recourse to any other entity,
     affiliated or otherwise; (3) the Appellant is in a different
     business from its affiliate and benefits from no support, technical
     or otherwise; and (4) decertification of the Appellant as a
     small business will condemn other companies to bankruptcy
     rather than rescue by other companies.
     
Noting that Goff's new SBA Form 355, Application for Small
Business Size Determination, only reflected the aggregate number
of employees for itself and George Fischer Foundry Systems, Inc.
(GFFS), a combined average of less than 500 employees, the
Regional Office referred to a "Dun & Bradstreet Million Dollar
Directory" for information respecting employment for George
Fischer Corporation and certain of its affiliates. 1/ [Emphasis
in original.] This resulted in a combined reported employment
which exceeded 800 employees. Thus, the Regional Office concluded
that, based upon the known affiliates, the aggregate number of
employees exceeded the size standard.

The Regional Office rejected Goff's arguments, noting that affi
liation is judged by the presence of the power to control,
stating, in pertinent part:

     ...As a wholly-owned subsidiary of GFFS, it is subject not
     only to the conditions imposed by that company, but also to
     those imposed by GF Ltd., the parent company. The fact that
     these companies have elected, for the current time, not to
     exercise that control is immaterial. [Citing the Size Appeal
     of Bruce-Terminix Company of San Antonio. Inc., No. 257
     (1967)].

Continuing, the Regional Office noted the holding by the Size
Appeals Board 2/ in the Size Appeal of Unicon Corporation, No.
1676 (April 5, 1983), that "where two companies are in different
lines of business, they are nevertheless considered affiliated
and their annual receipts aggregated where both are owned and
controlled by the same company."

Dismissing the Appellant's argument regarding the alleged effect
such application of the rules would have on potential financial
support or acquisitions of other financially depressed firms as
"totally beyond the bounds of SBA's size regulations," the
Regional Office asserted:

     Finally, as a division of GFFS, Goff is no longer a separate
     legal entity and can not claim independent status since an
     operating division is not a "concern" within the meaning of
     13 CFR 121.402(e)(2). See Size Appeal of Barton ATC. Inc.,
     No. 3548 (November 27, 1991) .

Accordingly, the Regional Office concluded:

Goff is clearly controlled within the meaning of 13 CFR
121.401(a)(2)(i) by the GFFS and GF, Ltd. Goff has failed to meet
its responsibility to provide evidence to refute the reported Dun
& Bradstreet figures which clearly show that the total employment
for George Fisher AG and its subsidiaries exceed the applicable
500 employee size standard....

This determination was received by Goff on December 16, 1992, and
an appeal, postmarked January 15, 1993, was filed with this
Office. 3/ The Appellant states, in pertinent part:

     ...The Administration's characterization that Goff is
     precluded from status as a Small Business based solely on
     its ownership ties with GF, Ltd and GFFS is unfair, narrow-
     sighted and illogical. Goff admits that it is owned by GFFS
     and that GFFS has the capacity to control Goff. It is also
     conceded that GFFS' decision not to exercise that power is
     irrelevant to the determination of whether Goff is an
     "affiliate" as that term is defined in the regulations
     governing Small Business contracting.

     The thrust of this appeal deals with the reality of Goff's
     relationship with GFFS and the other affiliates, and
     totality of the circumstances of this situation.
     
     GF, Ltd. owns GFFS, and is nothing more than a holding
     company. GF, Ltd. partakes in no way with the operation,
     management or governance of GFFS or any of its other
     companies. Likewise, GFFS owns Goff. GFFS's role is limited
     to consultation only on some specific acts as provided in
     the management regulations between Goff and GFFS. It is
     likewise clear that GFFS and Goff exist and operate totally
     independently of each other.

Emphasis in original. Citing Steven v. Roscoe Turner Aeronautical
Corporation, 324 F.2d 157 (7th Cir. 1963), respecting "factors in
determining whether a subsidiary is a 'mere instrumentality' of
its parent," the Appellant contends that Goff and GFFS should not
be considered a single entity. Furthermore, asserts the
Appellant, SBA regulations require that, in evaluating
affiliation, consideration be given "to all appropriate factors
'including...common management, and contractual relationships."'
Emphasis and ellipsis in original. In support of its point, the
Appellant argues, in pertinent part:

     The acquisition of Goff was financed by way of an arms
     length, interest-bearing loan from GFFS' parent company,
     George Fischer Ltd. (GF Ltd.), located in Schaffhausen,
     Switzerland. GFFS and Goff are each managed independently
     from GF Ltd. and without interference in their daily
     business and/or long term business planning and strategies.
     
     Appellant's managerial relationship with and independence
     from GF Ltd. is governed and secured by a written set of
     Business Regulations which outline, by way of example and
     not limitation, the various acts which Appellant's manage
     ment can undertake without prior approval...[Appellant's
     Exhibit A].
     
     As stated in the sworn affidavits of Messrs. Pedicini and
     Prucha, attached herewith as Exhibits B and C respectively,
     Appellant is responsible for the performance of all
     contracts to which it is a party and is solely liable for
     its debts and obligations without recourse to any other
     entity....
     
     As stated...Mr. Prucha does consult with Mr. Pedicini on
     certain matters. However, even if this aspect of Goff's
     status is deemed to affect its independence as a small
     business entity, decertification would not be warranted in
     light of the fact that Goff and GFFS combined employ less
     than 500 people.

     Goff is in a different business from GFFS, and benefits from
     no support, technical or otherwise, in the performance of
     its contracts, including the SBA contracts. Likewise, Goff
     does not benefit from any indemnification for liability or
     obligation arising from the conduct of its business....

The Appellant maintains that Goff was not established to circum-
vent the small business set-aside policy, but was acquired by
GFFS through an asset purchase as a result of Goff's financial
difficulties in 1989-90, and states: "In summary, the acquisition
did not affect Appellant's management and conduct of its business
in any manner that should warrant its decertification as a small
business entity."

The record on appeal is ambiguous respecting the identity and/or
relationship between George Fischer Corporation and George
Fischer Ltd. (which we take to be "GF Ltd."). On the one hand,
the Regional Office refers to George Fischer Corporation in its
determination as the parent of GFFS, as do the financial state
ments for GFFS, submitted by the Appellant to the Regional
Office. These state that GFFS is a subsidiary of George Fischer
Corporation, and that George Fischer Corporation owns 99 percent
of the common stock of GFFS. Yet, elsewhere, the Regional Office
refers to GFFS as being owned by GF Ltd., as does the Appellant.
The Appellant's "Exhibit A," which consists of a portion (two
pages) of the aforementioned "Business Regulations," appears to
run between George Fischer Ltd., of Schaffhausen, Switzerland and
GFFS. Our review thereof, as well as the other exhibits submitted
by the Appellant, revealed no express evidence of the legal
relationship between George Fischer Ltd. and GFFS. In any event,
however, the record, including Appellant's Exhibit A, discloses
no abdication of the power to control customarily inherent in
stock ownership, whether by George Fischer Corporation or by
George Fischer Ltd. Despite this ambiguity, the Appellant does
not appear to dispute, nor could it on this record without
contradicting its own evidence, the assertions of the Regional
Office in the size determination respecting Appellant's
relationship to GFFS, the parent-subsidiary relationship between
George Fischer Corporation and GFFS, or the respective numbers of
employees cited by the Regional Office for each of these
entities.

Discussion

The above record leads us to the same conclusions reached by the
Regional Office in this case. There seems to be no dispute
respecting the two dispositive facts, namely: (1) that the
Appellant is a division of GFFS which, in turn, is wholly owned
by George Fischer Corporation, and (2) that the aggregate number
of employees of George Fischer Corporation and its affiliates,
including GFFS and the Appellant, exceeds the 500-employee size
standard. The pertinent regulation, 13 CFR 121.401, provides:

     (a)  General rule. (1) Except as otherwise noted, size deter
     minations shall include the applicant concern and all its
     domestic and foreign affiliates. Moreover, all affiliates,
     regardless of whether organized for profit, must be included.

     (2)   Except as otherwise provided in this section, concerns
     are affiliates of each other when either directly or
     indirectly
          (i)   one concern controls or has the power to control
     the other, or
          (ii)  a third party or parties controls or has the power
     to control both, or
          (iii) an "identity of interest" between or among parties
     exists such that affiliation may be found.
          
     (3)  In determining whether affiliation exists, consideration
     shall be given to all appropriate factors, including common
     ownership, common management, and contractual relationships.

              *    *     *    *    *    *    *

     (c)  Nature of Control in Determining Affiliation.
     (1) Every business concern is considered to have one or more
     parties who directly or indirectly control or have the power
     to control it. Control may be affirmative or negative and it
     is immaterial whether it is exercised so long as the power
     to control exists.

                 *    *    *    *    *    *    *

     (2)  Control can arise through stock ownership; occupancy of
     director, officer or key employee positions; contractual or other
     business relations; or combinations of these and other factors.

                 *    *    *    *    *    *    *

     (e)  Affiliation Through Stock Ownership. (1) A person is
     presumed to control or have the power to control a concern
     if he or she owns or controls or has the power to control 50
     percent or more of its voting stock.

Furthermore, where the size standard involves the average number
of employees of a concern, 13 CFR 121.407 provides, in pertinent
part:

     (a)  Number of employees means the average employment of the
     concern, including the employees of its domestic and foreign
     affiliates, based upon employment during each of the pay periods
     for the preceding 12 calendar months.
     
Emphasis in original. The critical issue, here, is where does the
power to control rest. The Regional Office points out, and the
record supports, that George Fischer Corporation owns the con
trolling interest in GFFS; and that the Appellant, as an operat
ing division, is merely an integral part of GFFS. Based upon the
above regulations, it is clear that the Appellant is affiliated
with George Fischer Corporation, whose undisputed number of em
ployees, alone, exceeds the 500-employee size standard at issue.

The Appellant, however, urges us to consider the management rela
tionship between itself and GF Ltd. and GFFS, and directs our at
tention to its Exhibit A, the "Business Regulations" between GF
Ltd. and GFFS. The Appellant contends that these "Business
Regulations" provide the Appellant with management
"independence." This circumstance, however, does not alter the
fact of George Fischer Corporation's ownership and the power of
control attendant therewith. As noted from our review of Exhibit
A, the same is true of George Fischer Ltd., regardless of its
actual relationship to GFFS. The Regional Office is correct in
observing that these "Business Regulations" do not bind the
future management relationship of the parties. In citing 13 CFR
121.401(b)(3) and calling upon this Office to consider "all
appropriate factors," the Appellant left out reference to the
very factor which Ls appropriate here, namely, that of "common
ownership." Thus, we find the Appellant's argument, and the
evidence offered in its support, to be impertinent to the
dispositive issue in this case.

Similarly, the Appellant's reliance upon Steven v. Roscoe Turner
Aeronautical Corporation, supra, is misplaced. That case dealt
with piercing the corporate veil of a subsidiary corporation in
order to hold the parent corporation liable for the acts of the
subsidiary, on the ground that the subsidiary was a "mere instru
mentality" of the parent. The case does not address the power to
control through stock ownership, which is the regulatory standard
applicable here. Consequently, we find the Appellant's cited
authority to be inapposite and its argument on this point to be
without relevance, here.

Lastly, we agree with the Regional Office that the Appellant's
argument respecting an alleged adverse effect upon potential
assistance to small business concerns is without merit. As
implied by the Regional Office, the Appellant is arguing policy,
which falls outside the Regional Office's jurisdiction. Clear
regulatory provisions and case precedent may not be ignored by
the Regional Office in order to accommodate the Appellant's
situation in this case.

In light of the foregoing record, we agree with the Regional
Office that the Appellant has failed to present relevant evidence
of a change of circumstances warranting the requested
recetification, as required by 13 CFR 121.1607(a). Moreover, we
conclude that the Appellant has not met its burden of proof in
this appeal. See 13 CFR 121.1707.

Conclusion

For the reasons stated above, the Regional Office's determination
is AFFIRMED; the appeal is DENIED.

This is the final decision of the Small Business Administration
in this proceeding. See 13 CFR 121.1720(a), (b), and (c).



                         ___________________________________
                         Michael S. Cole (Presiding)
                         Administrative Judge
                         
                         
                         ___________________________________
                         Gloria E. Blazsik (Concurring)
                         Administrative Judge
                         
                         
                         ___________________________________
                         Elwin H. White (Concurring)
                         Administrative Judge


_______________

     1/ The Dun & Bradstreet directory lists employment figures
for George Fischer Signet and Signet Scientific Company, and
their reported parent company, George Fischer Corporation, which,
in turn, is reported to be a subsidiary of George Fisher AG.
     2/ The decisions of the Size Appeals Board have been adopted
as precedent by the Office of Hearings and Appeals. See Size
Appeal of Genie Services, No. 1857 (December 23, 1983).
     3/ Pursuant to 13 CFR 121.1607(c), the denial of an
application for recertification is deemed a formal size determi
nation and is appealable to this Office in accordance with the
provisions of 121.1701 through 121.1722. Consequently, this
appeal is "timely," because postmarked not later than 30 calendar
days after the date of receipt of the adverse, determination. See
13 CFR 121.1705(a)(1).