Buckskin Construction Company, Inc., No. MSB-480 (August 22, 1994)
Docket No. MSBE-94-5-25-20
                    UNITED STATES OF AMERICA
                                
                  SMALL BUSINESS ADMINISTRATION
                                
                 OFFICE OF HEARINGS AND APPEALS
                                
                        WASHINGTON, D.C.
IN THE MATTER OF:             )
                              ) Docket No. MSBE-94-5-25-20
Buckskin Construction         )
Company, Inc.                 )
                           APPEARANCES
For the Petitioner:           For the Agency:
Mr. Stanley A. McCasland      John T. Spotila, Esq.
President                     General Counsel
Buckskin Construction         Katherine C. Power, Esq.
  Company, Inc.               Agency Representative
Route 1, Box 250              Small Business Administration
Wilburton, OK 74578           409 Third Street, SW
                              Washington, DC 20416
                             DIGEST
The regulations published at 54 Federal Register 34692, et seq.,
on August 21, 1989 and codified at 13 CFR Part 124 must be used
to evaluate all applications for participation in the Agency's
8(a) Program pending as of August 21, 1989 or filed thereafter.
13 CFR 124.1(a)(2)(i).
An applicant for participation in the 8(a) Program has the burden
of proving, by a preponderance of the evidence, all elements of
its eligibility. 13 CFR 124.210(h)(3)(ii); 13 CFR 134.31(a).
Ordinarily, in order to be eligible to participate in the 8(a)
Program, an applicant concern must be one which is at least 51
percent unconditionally owned by an individual who is determined
by SBA to be socially and economically disadvantaged, and the
socially and economically disadvantaged individual upon whom
eligibility is based must have the power to control the day-to-
day operations of the applicant firm. 13 CFR 124.103; 13 CFR
124.104.
When credible evidence adduced by the Petitioner in support of
its position is not controverted in any way, it will be found to
preponderate. Matter of B&H Contracting Company Inc., No. 460
(April 6, 1994).
"Another firm in the same or [a] similar line of business as the
applicant...concern," as used in 13 CFR 124.104(c)(2), means "all
business activities within the same two-digit 'Major Group' of
the Standard Industrial Classification (SIC) System (set forth in
the SIC Manual) as the primary industry classification of the
applicant concern. 13 CFR 124.100; Matter of Super Solutions
Corporation, No. 461 (April 12, 1994).
Although the nondisadvantaged part owner's providing, without
cost, land for use as the base of the applicant firm's business
operations may not, in and of itself, form the basis for con
cluding that he thereby secured the power to control the firm, a
reasoned conclusion to that effect can result from a consider
ation of all the facts found in the business relationship between
the disadvantaged individual and the nondisadvantaged individual
as co-owners. 13 CFR 124.104(a)(1); 13 CFR 124.104(d)(3). Matter
of Advent Engineering Services. Inc., No. 470 (June 9, 1994).
The Associate Administrator may reasonably conclude from the
record that power to control the Petitioner resides in a non
disadvantaged individual even though there is no evidence that
that power is being exercised, has been exercised or will be
exercised in the future. Matter of Sequro Project Services Inc.,
No. 472 (June 16, 1994).
All of the circumstances relating to the relationship between
disadvantaged and nondisadvantaged individuals found in an appli
cant firm must be considered when seeking to determine where and
with whom the power to control the firm resides. Matter of Advent
Engineering Services. Inc., No. 470 (June 9, 1994).
If several reasons for denial of eligibility are set forth in the
Associate Administrator's final determination, and at least one,
though not all of those reasons, is grounded in the law or the
regulations and is factually supported by the record, the denial
may be upheld on review under the arbitrary and capricious
standard. Matter of Anion Corporation, No. 473 (June 20, 1994).
Evidence that was not adduced for the administrative record that
was considered by the Associate Administrator in making his
determination may not be admitted in a proceeding to set aside
that determination. 13 CFR 124.210(h)(3)(i). Premier Abatement
Technologies Corporation, No. 468 (May 20, 1994).
                         FINAL DECISION
                         August 22, 1994
USHER, Administrative Law Judge:
Jurisdiction
Authority for these proceedings is found in Section 409 of the
Business Opportunity Development Reform Act of 1988, Public Law
100-656 (Section 8(a)(9) of the Small Business Act of 1958, as
amended; 15 U.S.C. 637(a)(9)), hereinafter referred to as "the
Act," and in the regulations codified at 13 CFR Parts 124 and
134, which are referred to hereinafter by section numbers only.
Issues
Is there a reasonable factual basis and an evidential rationale
for the conclusion of the Acting Associate Administrator 1/ in
the record that was before him at the time he made his determina
tion; is it clear from the record and from the determination it
self that the Acting Associate Administrator did not err in
interpreting the facts or the law or in applying the law to the
facts found in the record?
Facts and Arguments of the Parties
The Petitioner, an Oklahoma corporation located in Wilburton,
Oklahoma, was incorporated on or about January 24, 1986 and is
engaged in residential and nonresidential building construction.
The firm's President, Stanley A. McCasland, owns 51 percent of
the corporation's stock; its Secretary/Treasurer, Clayton Browne,
Jr., owns 47 percent; and its Vice President, G. Don Hill, owns
two percent.
On or about September 25, 1992, the Petitioner's President filed
an application for admission to the Agency's 8(a) Program.
In a letter dated October 18, 1993, the Associate Administrator
denied the application because her office determined that
McCasland, a Native American and the individual upon whom eligi
bility was based, was not economically disadvantaged and did "not
devote full-time [sic] to the management of the applicant
concern." It was further determined by the Associate Adminis
trator that "the firm does not comply with the [Agency's]
requirements governing the participation of nondisadvantaged
individuals," and that the "firm may not qualify as a small
business." The Associate Administrator elaborated upon her
assertion about nondisadvantaged individuals, in pertinent part:
     Current program policy provides that nondisadvantaged
     individuals may be involved in the management of an
     applicant concern and may be stockholders, partners,
     Officers, and/or Directors of such concern, provided that
     they, their spouses or immediate family members, who reside
     in the individual's household, may not:
          Be an officer, Director, or more than ten percent
          owner, stockholder, or partner of another firm in the
          same or similar line of business as the
          applicant...concern.
     Your application indicates that Clayton Browne, Jr., a
     shareholder not claiming disadvantaged status, owns Browne's
     Right of Way Maintenance, Inc., a firm in a similar industry
     as the applicant concern [sic].
Regarding the finding that McCasland does not devote full time to
the management of the applicant concern, the Associate
Administrator advised the Petitioner, in pertinent part:
     Current 8(a) program regulations require that the
     disadvantaged individual holding the position of President
     or Chief Executive Officer must be engaged full-time [sic]
     in the day-to-day operations of the applicant concern. This
     requirement precludes outside employment and other business
     interests which conflict with the management of the firm or
     prevents [sic] it from achieving the business development
     objectives of the 8(a) program.
     In this regard, we note that you own Mac Lumber and have
     reported at least two other sole proprietorships on your
     personal tax forms. These outside activities, in our view,
     will conflict with your management of the applicant concern.
The Associate Administrator advised McCasland that if the firm
wished to have the application reconsidered, it would be
necessary to supply the following to support such a request:
     1) Evidence to document that you [Stanley A. McCasland] meet
     the economic disadvantage criteria. Your documentation
     should include, but not be limited to, the following:
     Updated SBA Forms 413, Personal Financial Statements for you
     and your spouse; and your 1992 Personal Income Tax
     statements;
     2) Evidence that nondisadvantaged officials of the firm do
     not have excessive control because they have the ability to
     control the firm through facility leases;
     3) Application for Small Business Size Determination (SBA
     Form 1340). These forms may be obtained from the Division of
     Program Certification and Eligibility, U.S. Small Business
     Administration, Dallas Central Office Duty Station;
     4) Financial statements and Income Tax Returns for each of
     the three preceding fiscal years for your other businesses,
     all affiliates and subsidiaries of your firm and Browne's
     Right of Way Maintenance, Inc.; and
     5) Financial information to include, but need not be limited
     to: (a) business income tax returns for the applicant
     concern's most recent year-end [sic]; (b) business financial
     statements no older than 90 days; and (c) most recent year-
     end business financial statements.
The Petitioner requested reconsideration of the Associate
Administrator's determination on June 24, 1993 and supplied,
among other things, the following:
     1) Updated SBA Forms 413, Personal Financial Statements and
     copies of 1992 personal Income Tax statements for McCasland
     and his wife;
     2) Buckskin's financial statements for the periods ending
     December 31, 1992 and September 30, 1993, together with
     income tax returns for the year ending December 31, 1992;
     3) Browne's financial statements for the period ending July
     31, 1993, together with income tax returns for the past
     three fiscal years; and
     4) "Evidence that nondisadvantaged officials of the firm do
     not have excessive controls - leases." [2/]
Relative to the adverse finding of the Associate Administrator
that McCasland does "not devote full-time [sic] to the management
of the applicant concern," the Petitioner argued, in relevant
part:
     McCasland devotes 100% of his working time to Buckskin
     Construction. He is engaged full-time [sic] in the day-to-
     day operations of the corporation. The alleged conflicts
     noted on Mr. McCasland's return are Hadson Petroleum, which
     is a working interest only in a gas well (a passive business
     relationship), royalty interests (passive business
     relationships), and J&J Race Horses of which Mr. McCasland
     is not a trainer, etc. He has an ownership stake, limited to
     receiving income, and is not in the day-to-day management.
     This is only an investment (ownership interest) and is a
     passive business relationship. The information furnished on
     IDS Services is his wife's job. This, of course, has nothing
     to do with his daily work schedule. The tax return will
     clearly show that these are not major roles in Mr.
     McCasland's daily schedules. The net loss on the 1991 return
     on the oil & gas and the horses was ($2,665). A person is
     not going to invest time to lose $2,665 and jeopardize a
     $6,000,000 business.
     Also, in regard to the ownership of Mac Lumber: Mac
     Wholesale Lumber was established for the benefit of Buckskin
     Construction. At the time of Mac Lumber's establishment,
     Buckskin was required to purchase its construction materials
     from an Indian-owned material supplier. Mr. McCasland, being
     Choctaw Indian, set up this sole proprietorship in order to
     satisfy the requirements of Housing and Urban Development
     (HUD), which established the criteria for bidding to and
     working for the Indian Housing Authorities. The attached
     personal tax return shows that Mac Lumber is incorporated in
     Mr. McCasland's personal return.
     For the lumber yard to meet the eligibility requirements
     maintained by the Indian Housing Authorities, the lumber
     yard was open to the public. However, the sales were
     basically to Buckskin Construction and its staff, and no
     aggressive effort was made to seek outside business (other
     than minimal advertising and maintenance of a phone line, as
     was also required).
                          * * * * * * *
     The lumber yard was on the premises, and the staff did the
     transfers and paperwork. Any time spent managing Mac Lumber
     was no different from time Mr. McCasland would spend
     purchasing materials, figuring prices, etc. However, for
     further clarification of this matter, Mr. McCasland has
     phased out Mac Lumber as of July, 1993. The main reason for
     this being that the Indian Housing Authorities have become
     more self-sustaining and are no longer required to answer to
     HUD as much as in the past.
                          * * * * * * *
     The phasing out...should further help to expedite any
     confusion on this matter [sic].
About the Associate Administrator's determination that the
Petitioner "does not comply with the requirements governing the
participation of nondisadvantaged individuals" in its affairs,
the Petitioner argued, in pertinent part:
     Clayton Browne, Jr., a shareholder in Buckskin...does own
     51% of Browne's Right of Way Maintenance, Inc. However, this
     firm is definitely not a similar industry as the applicant
     concern. Browne's...is in the business of clearing brush and
     trees, etc., from under electrical lines for rural
     electrical cooperatives, etc. This company does not use the
     same equipment nor share the same resources, etc. The last
     three years [sic] tax returns, as well as the latest
     financial statement, are attached as documentation that this
     company is not a business affiliate nor [sic] in the same or
     similar industry as the applicant concern. In order to
     further stress that these are not of similar industry [sic],
     please note that the SIC Code for Browne's...is 1629, and
     the primary SIC Code for Buckskin...is 1521 and the
     secondary SIC Code is 1541.
Almost ten months after the Petitioner sought reconsideration of
its application, in a letter dated April 13, 1994, the Agency's
Acting Associate Administrator again denied the application,
advising McCasland, in relevant part, as follows:
     After a careful review of the materials submitted in your
     reconsideration request, it is our view that you have not
     provided sufficient documentation to overcome two of the
     original four reasons for decline. The following conditions
     have not been met:
     
     1) You have not provided sufficient new evidence to allow us
     to conclude that you [Stanley A. McCasland], the individual
     upon whom eligibility is based, devote full-time [sic] to
     the management of the applicant concern.
     
     In this regard, we note that in an effort to overcome this
     reason for decline you stated in your request for
     reconsideration that Mac Lumber was phased out as of July
     1993. However, we note that your request for reconsideration
     does not contain any documented evidence to indicate that
     Mac Lumber has been phased out and is no longer operational.
     
     Therefore, in the absence of information evidencing that Mac
     Lumber has been phased out and is no longer operational, we
     can not [sic] conclude that you have provided sufficient new
     evidence to allow us to conclude that you are devoting full-
     time [sic] to the management of the applicant concern.
     
     2) You have not presented sufficient new evidence to allow
     us to conclude that the applicant concern is in compliance
     with the requirements governing the participation of
     nondisadvantaged individuals.
     
     In the above referenced decline letter, we specifically
     advised you that our determination was based on the fact
     that Mr. Clayton Browne, Jr., a nondisadvantaged shareholder
     in the applicant concern, owned Browne's Right of Way
     Maintenance, Inc., a firm in the same or similar line of
     business as the applicant concern. Furthermore, we also
     requested that you provide evidence indicating that
     nondisadvantaged officials of the firm do not have excessive
     control because of leasing arrangements.
     A review of your reconsideration request reveals that Mr.
     Clayton Browne, Jr., is still a shareholder and official
     (Secretary/Treasurer) in the applicant concern and a 50
     percent owner of Browne's Right of Way Maintenance, Inc. and
     a 33 1/3 percent owner of Piney Creek Lumber & Supply, Inc.
     Furthermore, you state that the applicant concern leases
     land from Mr. Browne for $1.00 (per year). Such an agreement
     can not [sic] be construed as an arms-length [sic]
     agreement.
     Therefore, based on the information contained in your
     request for reconsideration, we can not [sic] conclude that
     you have provided sufficient new evidence to allow us to
     conclude that the applicant concern is in compliance with
     the requirements governing the participation of
     nondisadvantaged individuals and that nondisadvantaged
     individuals do not control or have the power to control the
     applicant concern.
In a letter dated May 20, 1994 (received and docketed on May 25,
1994), the Petitioner's President filed a Petition, in accordance
with the provisions of Section 124.210(a)(1) of the regulations,
seeking my review of the Acting Associate Administrator's adverse
determination. 3/
McCasland argued, insofar as is relevant and admissible here:
     SBA's letter of denial described Browne's Right of Way
     Maintenance, Inc. as "a firm in the same or similar line of
     business as the applicant concern." This issue was addressed
     in my letter dated November 17, 1993. Specifically, I stated
     that the activities of Browne's Right of Way, Inc. are
     TOTALLY different from the activities of Buckskin
     Construction Company, Inc. My comments were: Browne's Right
     of Way Maintenance, Inc. is in the business of clearing
     trees, etc. from under electrical lines for rural electric
     cooperatives, etc. This company does not use the same
     equipment nor share the same resources, etc. Neither firm at
     any time shares personnel, vehicles, nor [sic] operating
     equipment. I further stated that the two firms did not have
     the same primary nor [sic] secondary SIC codes. The SIC code
     for Browne's Right of Way Maintenance, Inc. is 1629, and the
     primary SIC code for Buckskin Construction Company, Inc.
     (the applicant concern) is 1521 and the secondary SIC code
     is 1541.
     Also in response to paragraph #2: Lease arrangements.
     Buckskin...leases land from Mr. Clayton Browne primarily for
     reasons of reducing operating expenses. Mr. Browne does NOT
     exert "excessive control" over Buckskin...because I (Stanley
     A. McCasland) always have the OPTION to place the equipment
     and building on my personal 40 acres. In terms of lease
     agreement: please note that the lease agreement is basically
     advantageous to me (Stanley A. McCasland). There is no
     penalty clause, no requirements to restore the land to its
     original condition, etc., and I have the option to relocate
     at any time.
     Mr. Browne's primary contribution to Buckskin...is his skill
     and expertise as a construction cost estimator. However, the
     firm is not totally reliant upon Mr. Browne for his skills.
     I have another construction cost estimator, Mr. G. Don Hill,
     who is equally as skilled. Therefore, Mr. Browne does not
     exert excessive control because of his skills as an
     estimator. As Majority Owner and President, I (Stanley A.
     McCasland) use the skills of these estimators in an advisory
     capacity. I retain the right to accept or modify both Mr.
     Browne's and Mr. Hill's estimates prior to final submission
     of any bid. [Emphasis by capitalization in original.]
The Agency's Counsel filed a timely Response to the Petition on
July 11, 1994.
Counsel referred to the regulations found at Section 124.104(a)
and asserted that compliance with those regulations is "critical
to the integrity of the 8(a) program." She further asserted that
the Acting Associate Administrator's determination that McCasland
was not in compliance with the requirements of these regulations
because of the necessity of his devoting considerable time to the
operation of Mac Lumber was a reasonable one inasmuch as it was
based on these facts of record:
     Mac Lumber is a business, and for Mr. McCasland to run such
     a business would prevent him from devoting full time to his
     management of Buckskin. The 1992 tax return McCasland filed
     for Mac Lumber lists $1,568,000 in sales, and $1,550,000 in
     costs, which would seem to reflect an active business in
     1992, the time period in which he submitted his application.
Counsel recognized that
     [t]here have been a number of...decisions [of this Office]
     which deal with the issue of whether or not the
     disadvantaged individual upon whom eligibility is based
     devotes full-time [sic] to the applicant concern...[and
     that, in several of them, this Office] reasoned that if the
     [Petitioner] offers evidence that the individual upon whom
     eligibility is based is in full-time control of the
     applicant concern, and the evidence is uncontroverted, then
     a finding to the contrary by SBA could be arbitrary and
     capricious.
Counsel pointed out that this Office found, in the Matter of
Allside Services Corporation, No. 439 (August 31, 1993), that
"there was evidence in the record (corporate tax returns) which
demonstrate that it was reasonable...to find that the CEO of an
applicant firm spent considerable time in another business," and
she suggested that "the instant case is analogous to Allside...
since the tax returns of Mac Lumber [Exhibit E], admittedly owned
and managed by Mr. McCasland, show considerable sales and thus a
volume of business which indicates time spent by Mr. McCasland on
Mac Lumber, away from the applicant concern, Buckskin."
With regard to the issue of Browne's power to control Buckskin,
Counsel cited several decisions rendered by this Office wherein
it was held that "whether nondisadvantaged individuals may ac
quire the power to control the [applicant] concern 'will depend
on all the facts involved in the relationship between the disad
vantaged individual and the nondisadvantaged individuals or
entities."' 4/
Counsel argued that:
     [W]hen one examines the relationship between Browne and
     Buckskin, one sees the following: Mr. Browne is an officer
     and 47% shareholder in Buckskin who also owns two other
     companies; one of which is in the same SIC division as
     Buckskin, and one [of] which provides Buckskin its main
     supplies; and, both of Browne's companies have the same
     address as Mr. McCasland's other business, Mac Lumber. Also,
     Browne leases the land Buckskin is located on for only $1.00
     a year.
     SBA submits that when the totality of this relationship is
     considered, and the above factors were considered, it was
     reasonable for SBA to conclude that Mr. Browne has the power
     to control Buckskin.
Discussion
To determine the Petitioner's eligibility for admission to the
Agency's 8(a) Program, the Acting Associate Administrator was
bound to follow the Agency's regulations. The regulation at
Section 124.103 provides, insofar as is relevant here:
     Except for concerns owned by Indian tribes, Alaska Native
     Corporations or Native Hawaiian Organizations, in order to
     be eligible to participate in the 8(a) program, an applicant
     concern must be one which is at least 51 percent
     unconditionally owned by an individual who is a citizen of
     the United States...and who is determined by SBA to be
     socially and economically disadvantaged.
The regulation at Section 124.104 requires, in pertinent part:
     Except for concerns owned by Indian tribes, Alaska Native
     Corporations...and Native Hawaiian Organizations...an
     applicant concern's management and daily business operations
     must be controlled by an owner(s) of the applicant concern
     who has (have) been determined to be socially and
     economically disadvantaged.
                          * * * * * * *
          
     (a)(1) An applicant concern must be managed on a full time
     basis by one or more individuals who have been found by SBA
     to be socially and economically disadvantaged, and such
     person(s) must possess requisite management or technical
     capabilities as determined by SBA.
                          * * * * * * *
       (2) At least one socially and economically disadvantaged
     full-time manager must hold the position of President or
     Chief Executive Officer. This precludes outside employment
     or any other business interest by the individual which
     conflicts with the management of the firm or hinders it in
     achieving the objectives of its business development plan.
     Any disadvantaged person upon whom 8(a) eligibility is
     based, who is engaged in the management and daily business
     operations of the 8(a) concern and who wishes to engage in
     outside employment, must notify SBA of the nature and
     anticipated duration of the outside employment and obtain
     the written approval of SBA prior to engaging in such employ
     ment. SBA will review such notification for compliance with
     the requirement of day-to-day management and control of the
     8(a) concern.
                          * * * * * * *
     (c) Individuals who are not socially and economically
     disadvantaged may be involved in the management of an
     applicant concern, and may be stockholders, partners,
     officers, and/or directors of such concern. Such
     individual(s), their spouses or immediate family members who
     reside in the individual's household may not however:
       (1) Exercise actual control or have the power to control
     the applicant or 8(a) concern.
     (2) Be an officer or director or more than a 10% owner,
     stockholder, or partner of another firm in the same or
     similar line of business as the applicant ...concern.
                          * * * * * * *
     (d) Nondisadvantaged individuals or entities may be found to
     control or have the power to control in any of the following
     circumstances, which are illustrative only and not all
     inclusive:
                          * * * * * * *
     (3) The nondisadvantaged individual or entity provides
     critical financial or bonding support or licenses to
     the...concern which directly or indirectly allows [sic] the
     nondisadvantaged individual to gain control or direction of
     the...concern.
     (6) Other contractual relationships exist with nondis
     advantaged individuals or entities, the terms of which would
     create control over the disadvantaged concern.
When carefully considered in light of the law and the regula
tions, the evidence of record 5/ clearly supports the Acting
Associate Administrator's conclusion that the Petitioner did not
adduce preponderant evidence to prove that Browne does not have
the power to control the Petitioner (as that term was envisioned
by the drafters of the regulation found at Section 124.104(c)(4))
resulting from his relationship with the Petitioner.
However, the record does not support the Acting Associate Admin
istrator's conclusion that the Petitioner did "not provide suf
ficient new evidence to allow [the Agency] to conclude that...
[Stanley A. McCasland], the individual upon whom eligibility is
based, devote[d] full-time [sic] to the management of the
applicant concern." As has been decided previously:
     The regulation clearly requires that "the applicant firm
     must be managed on a full-time basis" by the individual who
     has been determined to be socially disadvantaged. There is
     no requirement, as the [Acting Associate  Administrator]
     seems to insist, that the socially disadvantaged individual
     devote all of his or her time to the management of the firm.
     Section 124.104(a)(1).  This requirement is conditioned only
     on the  preclusion of "outside employment or any other
     business interest which conflicts with the management of the
     firm or hinders it in achieving the objectives of its
     business development plan." Matter of B&H Contracting
     Company, Inc., No. 460 (April 6, 1994).
As in B&H Contracting, the evidence here convinces me that
McCasland does indeed devote the fullest amount of time to the
management of the Petitioner as is needed for a successful
business operation. McCasland has said as much, and there is no
refutation of that testimony. As was held in B&H Contracting:
"When credible evidence adduced by the Petitioner in support of
its position is not controverted in any way, it will be found to
preponderate." See also Matter of Art Construction Systems Inc.,
No. 432 (June 4, 1993). The Agency's insistence that any outside
employment or other business interest conducted by the
disadvantaged individual necessarily conflicts with the
management of the applicant firm or prevents it from achieving
the business development objectives of the 8(a) program, regard
less of the uncontroverted facts of record, is clearly error and
bespeaks of consummate capriciousness and arbitrariness. See also
Matter of Westsun Petroleum Products. Inc., No. 427 (March 15,
1993), pages 12, 13 and 14; Matter of KRW. Incorporated, No. 379
(August 29, 1991).
I take issue with Counsel's comparison of the facts obtaining
here and the situation found in the Matter of Allside Services
Corporation, No. 439 (August 31, 1993). 6/ If McCasland's
testimony is credible - and there is no apparent reason to
disbelieve him - the amount of business generated by Mac Lumber,
as reflected in the firm's 1992 income tax return, is of no
evidentiary significance, and it does not allow for a factual
comparison with the situation described in the Allside decision.
The Acting Associate Administrator's position regarding the
Petitioner's violation of "the [Agency's] requirements governing
the participation of nondisadvantaged individuals" on the basis
of Browne's being "an officer, Director, or more than ten percent
owner, stockholder, or partner of another firm in the-same or
similar line of business as the applicant or 8(a) concern" is not
legally sound. Browne is an officer and a 51 percent owner of
Browne's Right of Way Maintenance, Inc. However, as McCasland
correctly argued, that firm is not in the same or a similar line
of business as Buckskin. According to the regulation found at
Section 124.100, "same or similar line of business means all
business activities within the same two-digit 'Major Group' of
the Standard Industrial Classification (SIC) System...as the
primary industry classification of the applicant concern." 7/
McCasland was correct in pointing out that:
     "Browne's...is in the business of clearing brush and trees,
     etc., from under electrical lines for rural electrical
     cooperatives, etc. [and] does not use the same equipment nor
     share the same resources, etc.
                          * * * * * * *
     [P]lease note that the SIC Code for Browne's...is 1629, and
     the primary SIC Code for Buckskin...is 1521 and the
     secondary SIC Code is 1541.
The Standard Industrial Classification Manual bears this out.
Major Group 15 includes residential building construction; "land
clearing contractors" are listed under SIC code 1629, a part of
Major Group 16. 8/
Turning again to the Acting Associate Administrator's conclusion
that the Petitioner failed to prove that Browne does not have the
power to control the Petitioner on the basis of his relationship
with the Petitioner, notwithstanding the Acting Associate Admin
istrator's error concerning a violation of the regulation found
at Section 124.105(c)(2), the evidence of record supports the
general proposition of the Agency's Counsel that "when the
totality of [Browne's] relationship [to the applicant firm] is
considered...it [is] reasonable...to conclude that...Browne has
the power to control Buckskin." Browne's "relationship" to
Buckskin consists of his ownership of 47 percent of Buckskin's
stock, his lease to Buckskin, virtually rent free, of the
premises upon which Buckskin does business, and his ownership of
Piney Creek Lumber & Supply, Inc., a firm that seemingly supplies
Buckskin with the essential supplies for its operation. Perhaps
no one of these factors, standing alone, would suffice to support
the conclusion that Browne has the power to control Buckskin,
but, considering these facts together, one is certainly able to
hypothesize a situation in which the nondisadvantaged individual
could utilize his ultimate ability to manage and direct Buck
skin's daily operations. Matter of Advent Engineering Services.
Inc., No. 470 (June 9, 1994).
In Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 28
L.Ed.2d 136, 91 S.Ct. 814 (1971) the Court held that scrutiny of
the facts does not end, however, with the determination that the
Acting Associate Administrator has acted within the scope of his
statutory authority. The law requires a finding that the actual
choice made was not "arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law." To make a
finding that the Acting Associate Administrator had a rational
basis for his determination, I must consider whether that
determination was based on a consideration of the relevant
factors and whether there has been a clear error of judgment.
See also Bowman Transportation Inc. v. Arkansas-Best Freight
System. Inc., 419 U.S. 281, 42 L.Ed.2d 447, 95 S.Ct. 438 (1974);
Burlington Truck Lines. Inc. v. United States, 371 U.S. 156, 9
L.Ed.2d 207, 83 S.Ct. 239 (1962); United States Lines v. Federal
Maritime Commission, 584 F.2d 519 (D.C. Cir. 1978).
I find from the determination and from the administrative record
upon which it was based that there has been no clear error of
judgment on the part of the Acting Associate Administrator; the
determination here accords with the law and the applicable
regulations and is based on the evidence of record.
Having decided that the Associate Administrator's conclusion that
the Petitioner did not adduce preponderant evidence to prove that
Browne does not have the power to control the Petitioner, as the
result of his relationship with the firm, is grounded in the law
and the regulations and is factually supported by the record, I
must conclude that his denial of eligibility has a reasonable
basis and should, therefore, be upheld on review under the
arbitrary and capricious standard.
If several reasons for denial of eligibility are set forth in a
final determination, and at least one has its basis in the law
and in the facts of record, the denial will be held to be not
arbitrary, capricious or contrary to law. Matter of Anjon
Corporation, No. 473 (June 20, 1994); Matter of Advent
Engineering Services. Inc., No. 470 (June 9, 1994).
Conclusion
The April 13, 1994 determination denying 8(a) entry eligibility
to the Petitioner, Buckskin Construction Company, Inc., accords
with the law and the pertinent regulations and is reasonably
based upon the record that was before the Acting Associate
Administrator at the time he made that determination; therefore,
I find that the determination IS NOT ARBITRARY, CAPRICIOUS OR
CONTRARY TO LAW.
This constitutes the final decision of the Small Business Admin
istration, and it is binding upon the Petitioner, the Agency and
its employees. See Section 124.210(i).
                              _______________________________
                              Benjamin G. Usher
                              Administrative Law Judge
1/ The Associate Administrator for the Agency's Office of
Minority Small Business and Capital Ownership Development made
the initial determination concerning the Petitioner's
eligibility, but prior to the Petitioner's request for a
reconsideration of that determination she was replaced by the
Agency's Acting Associate Administrator for Minority Enterprise
Development, who rendered the reconsidered determination on April
13, 1994.
2/ Other evidence submitted with the reconsideration request is
not pertinent to this appeal.
3/ With the Petition, the Petitioner's President submitted
additional evidence, including a bank statement for Mac Wholesale
Lumber Company indicating a zero balance on November 11, 1993; an
Oklahoma Sales Tax Report, dated July 15, 1993; and a letter from
the Petitioner to the Oklahoma Tax Commission, dated May 20,
1994, requesting verification of the assertion that Mac Wholesale
Lumber Company "has been taken off the Tax Commission's rolls."
This evidence was not a part of the administrative record that
was before the Acting Associate Administrator at the time he made
his reconsidered determination on April 13, 1994 and, for that
reason, cannot be considered in this appeal proceeding. See
Section 124.210(h)(3)(i).
4/ Counsel cited the Matter of M.J.S., Inc., No. 435 (July 20,
1993) among others.
5/ The record consists of that evidence adduced by the Petitioner
prior to the reconsideration of the application by the Acting
Associate Administrator. To the extent that additional evidence
was adduced by the Petitioner with its Petition for my review,
such evidence cannot, and does not, form any basis for this
decision. Section 124.210(h)(3)(i).
6/ Further, as I said in B&H Contracting, "to the extent the
reasoning of the deciding judge [in Allside, and Matter of MSC
Electric, No. 442 (September 24, 1993)] diverges from the
precedential principles set out in [Matter of] Westsun [Petroleum
Products, Inc., No. 427 (March 15, 1993)] and [Matter of] KRW
[Incorporated, No. 379 (August 29, 1991)], I disagree.
7/ The Agency's Counsel erred when she stated: "'Similar line of
business' is not defined within the SBA size regulations at
121.401 [or] the 8(a) definitions at 124.100." Agency Answer,
page 10, footnote 4.
8/ Standard Industrial Classification Manual, Executive Office of
the President, Office of Management and Budget, 1987 Ed., pages
55 - 59.