Carolina Welding, Inc., No. MSB-401 (May 22, 1992)
Docket No. MSBT-91-12-13-30

                    UNITED STATES OF AMERICA
                  SMALL BUSINESS ADMINISTRATION
                 OFFICE OF HEARINGS AND APPEALS
                     WASHINGTON, D.C. 20416

IN THE MATTER OF:        )
                         ) Docket No. MSBT-91-12-13-30
Carolina Welding, Inc.   )

                           APPEARANCES

For the Petitioner:           For the Agency:
Mr. Allen J. Locklear         Michael K. Wyatt, Esq.
President                     General Counsel
Carolina Welding, Inc.        David A. Fishman, Esq.
205 Century Blvd.             Agency Representative
Bartow, FL 33830              Small Business Administration
                              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 questions arising on or after August 21, 1989
concerning participation in and termination, suspension and grad-
uation from the Agency's 8(a) program. 13 CFR 124.1(a)(2)(i).

In a Section 8(a) program termination action, initiated in
accordance with the provisions of 124.209 of the regulations,
the Agency has the burden of proving by preponderant evidence
that there is "good cause" for the Petitioner's program
termination.

"Good cause" for a participant's program termination may be based
upon, among other things: 1) a demonstrated pattern by the pro-
gram participant of failing to make required submissions or re-
sponses to the Agency in a timely manner, and 2) cessation of the
program participant's business operations.

Evidence of the program participant's having continually failed
to keep the Agency informed of its current address will eliminate
the participant's ability to use as a defense the fact that it was
not fully advised by the Agency.

                         FINAL DECISION

                          May 22, 1992

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 7(j) of the Small Business Act of 1958, as
amended; 15 U.S.C. 636(j)), 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.

Issue

Is there a reasonable factual basis and an evidential rationale
for the conclusion of the Associate Administrator 2/ in the re-
cord that was before her at the time she made her determination;
and is it clear from the record and from the determination itself
that the AA/MSB&COD did not err in interpreting or applying the
law and regulations to the facts found in the record?

Regulations

The Agency's regulations found at 124.209 provide, insofar as is
pertinent here:

     (a) General. Participation of a 8(a) business concern in the
     8(a) program may be terminated [2/] by SBA prior to the
     expiration of the concern's Program Term for good cause.
     Examples of good cause include, but are not limited to, the
     following:

                          * * * * * * *

     (6) A demonstrated pattern of failing to make required
     submissions or responses to the [Agency] in a timely
     manner, including:

     (i) Failure by the concern to provide SBA with required
     quarterly or annual financial statements within 90 days
     of the close of the reporting period, or required
     audited financial statements within 180 days of the
     close of the reporting period. Failure to provide SBA
     with requested tax returns, reports, or other available
     data within 30 days of the date of request.

                          * * * * * * *

     (7) Cessation of business operations by the concern.

Further, the regulations at 124.209(b) require written notifi-
cation of the Program Participant that termination of its status
is intended, and the Agency must set forth in the notification
letter its

     findings, based on the facts and in accordance with law and
     regulations, for every material issue relating to the
     grounds upon which [the] termination would be based, with
     specific reasons for each finding.

The Participant is allowed 45 days from the date of service of
the letter of notification to submit written information that

     would eliminate the ground(s) for termination or would
     explain why the proposed ground(s) should not justify
     termination.

The regulations further provide that the Agency shall reconsider
the proposed termination after the 45-day response period and
then notify the Participant that the grounds for the proposed
termination have been eliminated or that, despite the information
(if any) that has been provided, some or all of the grounds for
termination remain. According to the regulations, a second 45-day
delay shall be granted by the Director of the Division of Program
Certification and Eligibility, "where appropriate," and a
recommendation of the Participant's termination is then submitted
to the Associate Administrator by the Director.

Facts and Argument

The Petitioner, Carolina Welding, Inc., 3/ is a Native-American-
owned business that was admitted into the Agency's Section 8(a)
program on January 23, 1985. Initially organized and operated
under the laws of the State of North Carolina and having its
place of business in Lumberton, North Carolina, it moved its
operations to Lakeland, Florida sometime thereafter and is now
located in Bartow, Florida.

The Agency's evidence indicates that the Petitioner has failed
and refused to submit the required financial statements and other
information, or to respond at all to the Agency's inquiries since
early in 1986. 4/ No correspondence of any kind appears to have
been received from the Petitioner from early 1986 until the
receipt of the Petitioner's letter of August 13, 1991, seeking
assistance from the Atlanta regional representative of the
Agency's Office of Minority Small Business and Capital Ownership
Development. Correspondence from the Agency, consisting of
several letters addressed to the Petitioner's last known address
in Lumberton, North Carolina, was returned by the postal author-
ities as undeliverable, marked "moved, left no address" or 
"moved, forwarding order expired."

The Agency's Counsel argues that inasmuch as it has been deter-
mined that "[t]he Petitioner no longer has a phone listing in the
area and, prior to August 31, 1991, failed to notify SBA of an
address change...[t]herefore, SBA rationally determined that with
no forwarding address and with no forwarding phone listing the
business has ceased to exist."

The record reveals that the Agency attempted to notify the
Petitioner of its default and of the intention of the Agency to
initiate proceedings to terminate its 8(a) status because of the
default. In a letter dated March 21, 1990, the Agency's Regional
Chief of Program Certification and Eligibility in Atlanta advised
the Petitioner, in pertinent part, as follows:

     The purpose of this letter is to notify you that the U.S.
     Small Business Administration intends to terminate the 8(a)
     program participation of Carolina Welding.... This action is
     being proposed in accordance with the provisions of
     the...Regulations, 13 CFR 124.209...which provides [sic] in
     part that "participation of an 8(a) business concern in the
     8(a) program may be terminated by SBA prior to the
     expiration of the concern's Program Term for good cause."
     
     The reasons for this proposed termination action are as
     follows:
     
     1. A demonstrated pattern of failing to make required
     submissions or responses to the Administration in a timely
     manner, including:
     
     a) Failure by the concern to provide SBA with required
     quarterly or annual financial statements within 90 days of
     the close of the reporting period, or required audited
     financial statements within 180 days of the close of the
     reporting period.
     
     b) Failure to provide SBA with requested tax returns,
     reports, or other available data within 30 days of the date
     of request.
     
     c) Failure to respond to requests for information relating
     to the 8(a) program from SBA within the time frames provided
     for the requests.
     
     2. Cessation of business operations by the concern.
     
     In accordance with SBA regulations, Carolina Welding...
     shall have 45 days from the date of mailing of this letter
     of notification to submit, in writing, information which
     will eliminate the grounds for the proposed termination or
     explain why the proposed grounds should not justify
     termination. During this 45-day period, the firm may request
     a meeting with SBA to discuss the proposed termination
     action. However, any such meeting will not substitute for a
     written response. After the close of the 45-day response
     period, SBA will consider the proposed termination,
     including any information which the firm submits. At that
     time, SBA will notify Carolina Welding...that the grounds
     for the proposed action have been eliminated, or that, de-
     spite information that may have been provided, some or all
     of the grounds for termination continue to exist.

     If SBA determines that grounds for the proposed termination
     continue to exist, the firm's 8(a) program participation
     will be terminated. The firm will be afforded additional
     administrative rights, including the right to appeal to
     SBA's Office of Hearings and Appeals the decision to
     terminate the firm's 8(a) program participation. The
     regulations governing termination and hearing proceedings
     are found in the Code of Federal [Regulations at] 13 CFR
     124.209 and 124.210. A copy of these regulations is
     attached.
     
     Failure to provide a written response within 45 days from
     the mailing of this letter will cause SBA to continue
     termination proceedings. Information received after the 45-
     day period may not be considered in processing this action,
     but will be forwarded for review at the next level.
     
     If there are any questions regarding this letter of
     notification, please feel free to contact the undersigned at
     (404) 347-0177.

This letter was properly addressed and mailed to the Petitioner
by certified mail, with a return receipt requested, at the only
address the Agency had been given by the Petitioner. Neverthe-
less, it was returned by the Postal authorities as undeliverable
because the addressee had moved and the "forwarding order [had]
expired." The Agency received no response to this letter, and no
contact was made with the Agency by the Petitioner. Thereafter,
the Regional Chief of Program Certification and Eligibility rec-
ommended to the Director of Program Certification and Eligibility
that the Petitioner's program participation be terminated, and,
on or about July 20, 1990, the latter sent to the Petitioner its
second notification that the termination of its program par-
ticipation was being processed.

The Agency's record reveals that absolutely nothing occurred in
this matter from approximately July 20, 1990 until August 19,
1991 when a letter from the Petitioner was received in the
Agency's Atlanta Regional Office. In that letter, dated August
13, 1991, the Petitioner indicates that its business is located
in Lakeland, Florida and requests that its records be transferred
to the Agency's Coral Gables, Florida office. Mention is made by
the Petitioner of having been informed of the termination
proceedings, and there is a reference to a letter from the
Agency's Charlotte, North Carolina office of "the 24th of July"
(no year is stated) informing the Petitioner that its records had
been transferred to the Agency's Atlanta Regional Office in
connection with "termination." The Petitioner's owner states that
"we don't want to be terminated." Further, the record reveals a
second letter from the Petitioner, also dated August 13, 1991,
addressed to the Agency's Charlotte, North Carolina office. In
that letter, the Petitioner requests that its file be
"recover[ed]...from the MSB and COD office in Atlanta, Georgia
[because it is] taking issue with the termination proceeding for
non-compliance [sic]." The letter continues:

     In response to your letter dated July 24, 1991, [5/]
     indicating the reasons why my file was transferred to
     Mr. Washington [6/] is as follows [sic]:
     
     1. All my company's financial records through the end
     of the year 1985 were sent to the SBA. After that all
     records were destroyed as a result of a break-in [sic]
     of our office.
     
     2. When I moved to Florida, I left a forwarding
     address, and to-date [sic] am still receiving mail at
     this address. So in response to your statement that
     efforts to communicate via "Certified Mail-Return
     Receipt Requested" have been non-responsive [sic], is
     simply not true [sic]. I have no idea why these
     letters, notices, etc., have not reached me. You must
     have an incorrect address.

The record reveals an undated copy of a letter from the Agency's
Director of Program Certification and Eligibility, Darryl K.
Hairston, to the Petitioner. That letter refers the Petitioner to
the Agency's March 21, 1990 letter "notify[ing] you of its intent
to terminate [the Petitioner's] participation in the 8(a) program
for specific violations of Chapter 13 of the Code of Federal
Regulations..., Part 124." Referenced also is the "July 20,
1990...second letter from the Agency regarding [the Agency's]
intent to terminate [the Petitioner's] participation in the 8(a)
program." Hairston informed the Petitioner of the specific
violations that were cited in the notification letters, dated
March 21 and July 20, 1990, and stated that he was recommending
to the Associate Administrator that the Petitioner's 8(a) program
participation be terminated. He advised that the Associate
Administrator would inform the Petitioner of her determination in
writing. The record contains a copy of Hairston's recommendation
to Judith Watts, the Associate Administrator, and a copy of
Watts' termination letter to the Petitioner, dated November 8,
1991. Watts informed the Petitioner of its right to appeal her
determination to this Office.

In a letter dated November 14, 1991, Allen J. Locklear, President
of Carolina Welding, Inc., protested to Watts, citing the alleged
fact that the Agency's letters of March 21 and July 20, 1990 were
not received by the Petitioner in spite of the fact that a for-
warding address had been on file at the Post Office in Lumberton,
North Carolina, and that the firm had been receiving other for-
warded mail. The only reason given for the asserted violations of
 124.209(a)(6)(i) of the regulations by the Petitioner was:
"[W]e were not getting proper information from the Charlotte
office and due to circumstance [sic] failed to provide the
required data...." With regard to the asserted violation of
124.209(a)(7), the Petitioner's President stated: "[W]e are a
viable business in Florida and plan to continue operations in
this state. The poor market and economy of North Carolina led to
our move to Florida."

By letter of December 12, 1991, the Petitioner appealed the
determination of the Associate Administrator. No evidence was
presented, but the Petitioner's President repeated the arguments
made to the Associate Administrator on November 14, 1991, viz.,
that the Agency's Charlotte office rendered no assistance "in
acquiring projects" for his firm and he was "unable to pay the
necessary cost for reviewed financial statements and the other
pertinent information that needed to be forwarded." He admits
that "for a period of time there were no business operations by
Carolina Welding," but that was because Carolina Welding "did not
receive any assistance from the SBA office in Charlotte."

Discussion

The record clearly establishes a demonstrated pattern of viola-
tions of the regulations by the Petitioner, and those violations
are sufficiently serious to warrant termination of the Peti-
tioner's Section 8(a) program participation.

There is, in fact, no denial by the Petitioner's President of the
accusations made by the Agency. The Petitioner did not make the
necessary filings as required by the regulations, and it did not
keep the Agency advised of its current address. There was a
period of four years or more during which no contact whatsoever
was made by the Petitioner. The Petitioner's assertions regarding
a failure of assistance by the Agency's Charlotte, North Carolina
office are unsubstantiated. No claim is made by the Petitioner
that specific advice was sought from the Agency's representatives
concerning what was to be done if formal quarterly or annual
statements could not be filed because of financial difficulties.
Such conduct as was demonstrated by the Petitioner is
irresponsible and remains unexplained on the record.

The Agency has proved that the Petitioner has repeatedly violated
 124.209(a)(6)(i) and 124.209(7) of the regulations by a
pattern of conduct that indicates irresponsibility on the Peti-
tioner's part. Those violations, and that demonstration of
irresponsibility by its conduct, constitute good cause for the
termination of the Petitioner's 8(a) program participation, as
provided for by the regulation at 124.209(a). Further, the
Agency has shown that it has fully complied with the provisions
of 124.209(b) of the regulations; thus, in accordance with the
provisions of the regulations at 124.209(c), the Petitioner is
no longer eligible to receive any Section 8(a) program
assistance, but is obligated to complete previously awarded 8(a)
subcontracts.

Conclusion

On the basis of these undisputed facts, the provisions of the Act
and the regulations clearly mandate the Acting Associate
Administrator's termination of the Petitioner's Section 8(a)
participation; her action in that regard was rationally based on
the record that was before her at the time and IS NOT ARBITRARY,
CAPRICIOUS OR CONTRARY TO THE LAW.

This decision is the final Agency decision in the matter of the
termination of the Section 8(a) Program participation of Carolina
Welding, Inc., and it is binding upon the parties, including the
Agency and all those within the employ of the Agency. See the
regulation at 124.211(i).

                         _____________________________
                         Benjamin G. Usher
                         Administrative Law Judge

__________________________

1/ The Associate Administrator for the Agency's Office of
Minority Small Business and Capital Ownership Development may be
referred to herein as the "Associate Administrator" or the
"AA/MSB&COD," and the use of either term will designate the
Acting Associate Administrator, where applicable.

2/"Termination" is defined in 124.100 as "the permanent
cessation of 8(a) Program Participation prior to the expiration
of the concern's Program Term for good cause pursuant to
124.209."

3/ Initially, the firm was known as "Carolina Welding,
Construction & Maintenance Co." Its letterhead and the signature
line on its correspondence now read: "Carolina Welding, Inc." No
explanation is given for the change.

4/ The Agency's Counsel asserts that no statements have been
submitted "since 1985," but that is not correct. The
evidence reveals a penciled response to the Agency's letter
of January 7, 1986 and a typed financial statement dated
March 3, 1986 and received by the Agency on March 7, 1986.

5/ The record before me contains no copy of a letter of
July 24, 1991.

6/ Isaiah Washington was the Agency's Regional Administrator
for Minority Small Business and Capital Ownership
Development in Atlanta in 1991.