J. Nowak Construction Co. Inc., No. MSB-524 (September 7, 1995)
Docket No. MSBE-94-12-28-51
                    UNITED STATES OF AMERICA
                  SMALL BUSINESS ADMINISTRATION
                 OFFICE OF HEARINGS AND APPEALS
                        WASHINGTON, D.C.
_______________________________
                               )
IN THE MATTER OF:              )
                               )  Docket No. MSBE-94-12-28-51
J. Nowak Construction          )
Co. Inc.                       )
_______________________________)
                           APPEARANCES
For the Appellant:                      For the Agency:
Sylvia Fuentes Nowak                    John T. Spotila, Esq.
President                               General Counsel
J. Nowak Construction Co. Inc.          Denise Benjamin, Esq.
P.O. Box 1003                           Agency Representative
Northbrook, IL 60065                    409 3rd Street S.W.
                                        Washington, DC 20416
                             DIGEST
Findings by the Associate Administrator that the Applicant failed
to provide clear and convincing evidence of managerial and
technical skills to operate the business, as those terms are used
and applied in the Small Business Administration's section 8(a)
program, are not arbitrary and capricious.
                         FINAL DECISION
                        September 7, 1995
LITT, Administrative Law Judge: [1]
                          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. Section 637 (a)(9)], hereinafter referred to as
"the Act," and at 13 C.F.R. Parts 124 and 134, which are referred
to hereinafter by section numbers only.
                              ISSUE
     Did the Associate Administrator improperly apply the standard
of proof in determining that the Applicant had not provided clear
and convincing evidence of managerial and technical experience?
                      STATEMENT OF THE CASE
     By application filed November 29, 1993, J. Nowak Construction
Co. Inc., an Illinois corporation, filed an application for
admission to the Small Business Administration's section 8(a)
program for small minority owned businesses.  The application was
predicated upon the representation that Sylvia Fuentes Nowak was
socially and economically disadvantaged as the owner and operator
of the corporation, which specialized in the replacement of
windows.  The Associate Administrator for Minority Enterprise
Development, denied the application by letter dated June 16, 1994,
on a number of grounds, including a lack of managerial experience
and competency to operate the business and because her husband was
the highest compensated person in the business and had the power to
control the applicant concern.  A Petition for Reconsideration,
filed on July 27, 1994, was denied on December 14, 1994, solely on
the basis of a lack of managerial and technical experience of Mrs.
Nowak.  This appeal was filed on December 28, 1994.  The Agency
filed its Answer in response on February 13, 1995, and a series of
motions to strike; and responses thereto have been filed by the
parties.  The proceeding is ripe for disposition on the merits.
                     POSITION OF THE PARTIES
Petitioner
     Petitioner takes the position that the Agency is
discriminating against her because her non-disadvantaged husband
had previously managed the company and because of that fact the
Agency has unfairly refused to believe that she has the requisite
experience to manage and control the company.  In her motions filed
subsequent to the Agency Answer, she strenuously argues that in
another case, Matter of Tracie L. Crocker, d/b/a Cherokee
Helicopter Service, SBA No. 369 (1991), the Agency accepted the
unrefuted representations made by a woman applicant who was
admitted into the program while, on almost identical evidence, as
she sees it, her application and accomplishments as a business
woman are demeaned and ignored.
     She strenuously argues that she was Vice-President, Treasurer
and Secretary of the Applicant for five years prior to assuming the
President's position in 1993, and since that time there has been a
seven-fold increase in business which she attributes to her skill
and management.  She also points out that she helped her father in
a small construction business when growing up and is completely
conversant with the requirements of running a small business.
Agency
     The Agency takes the position that the sole experience she
alluded to when given several opportunities to augment her filing
were vague references to experience helping her father in the
construction business and this does not overcome the facts that her
husband managed the company for the preceding five years, she had
only been President for a few months before filing her application,
and she failed to submit substantiated facts illustrating that she
assumed managerial or technical responsibilities of the applicant
concern.  The Agency distinguishes the facts in the Cherokee case,
relied upon by the Applicant, where it admitted a woman into the
program.  It asserts that the Applicant in this case simply did not
submit similar evidence of the same nature and quality to establish
that she had the experience to manage this company.  In addition,
it argues that, even if some of her prior business experience is
credited, it does not relate to the business activity of the
Applicant.  In sum, the Agency cites several cases where a decision
of this nature has been upheld as a weighing of evidence reserved
for the Agency not the judge, and avers that despite applicant's
"outrage" there has been no showing of reversible error here.
                              FACTS
     The only relevant facts, given the narrow focus of the denial,
are those that go to control and managerial experience.  Norman
Nowak was President of the Applicant from 1987 until June 1993.
Presently, he is the highest paid employee, second only to the
President.  His wife, Sylvia Nowak, a Hispanic-American, assumed
the Presidency of the firm in June 1993 and filed an application in
November 1993 for admission into the 8(a) program on the basis of
her social and economic disadvantage.  The company has experienced
a significant increase in business during 1993 and 1994.  She
attributes this increase in business to her management skills.
     The evidence of Sylvia Nowak's managerial skills, other than
her claimed success of managing the Applicant concern, which she
claims increased its business, is her participation in her father's
construction business.  She states this experience as:
     Finally to elaborate on the development of my technical
     and managerial skills, much of my expertise has been
     cultivated through my hands-on experience running a small
     construction concern.
     Specifically, I learned take offs from reviewing
     blueprints with my father and sister, in addition to
     subcontractors, manufacturers' commercial reps, and, of
     course, from studying technical manuals that I borrowed
     from the library.
     I perfected my estimating skills by the use of commercial
     software that I tailored to my firm's specific
     requirements.
     I developed and heightened my abilities to draft bid
     proposals by extensive networking and, of course,
     attending bid openings.
Appeal Petition - Attachment #3
                   DISCUSSION AND CONCLUSIONS
Post Brief Motions
     A Motion to Strike the Agency's Answer was filed by the
Applicant, a Reply was filed by the Agency, and a Sur Reply was
filed by the Applicant.  In a nutshell, Applicant argues vehemently
that Mr. Severiano Alonzo, who is the Acting Division Chief for
Program Certification and Eligibility in Chicago, made his
recommendation prior to and without reference to material which he
had requested from the Applicant.  Applicant argues this is bad
faith since the requested material was provided timely and that it
demonstrated  her managerial skills.  The Agency argues that the
time notations fail to support the argument that Mr. Alonzo did not
have an adequate opportunity to review the material before making
his recommendation, and that, in any event, it is not a legitimate
basis for striking the Agency's answer.  The Agency then reiterates
its arguments on the evidence and the cases cited. [2]
     The Applicant's argument in the Sur Reply centers on the
alleged unfairness of requiring the Applicant to know Hearings and
Appeals case law on these issues, the specific and certain
similarities which the Applicant ascribes to the Cherokee case, and
what the Applicant believes is the lamentable effort of the Agency
to turn the application process from one designed to help
minorities into an adversarial process.
     The arguments are well joined.  Nothing in any of the
Applicant's filings support a finding of bad faith or even a remote
basis for striking the Agency's answer.  Therefore, the Applicant's
motion is denied.  The arguments made by both parties, as expanded
in these post answer filings, are considered in the discussion
below.
Review of the record
     This case bottoms out on whether the Administrative Law Judge
can or should substitute his or her judgement for that of the
Agency.  The answer is no, for it is the Agency that makes the
determination and unless there is a clear violation of simple
fairness or a specific showing that evidence was overlooked that
would be determinative of an ultimate issue, the Agency decision
must be sustained. See, Motor Vehicle Manufacturers Association v.
State Farm Mutual Automobile Ins. Co., 463 U.S. 29, 43 (1983).
Perhaps it is lamentable that the Agency views certain applications
as more adversarial than others, but there is more than ample
reason for the Agency to be suspicious and skeptical where an
application is filed by the spouse of a non-socially disadvantaged
person who was the prior president of the corporation.  Norman
Nowak ran the company for five years and has remained with the
company after the change in officers.  He is the second highest
paid person in the business.  While it may be somewhat unclear
whether the Agency found not only that Sylvia Nowak lacked
experience but that her husband was still in control of the
Applicant, either or both findings would be sustainable on this
record.
     The Applicant's reliance on the Cherokee case is misplaced.
In that case, as the Agency points out, a significant amount of
evidence was adduced by the applicant attesting to her managerial
skills.  After the fact, the Applicant, in the case at bar, argues
that some of the people she had dealt with in the past would have
supplied additional information if questioned and that it was the
Agency's responsibility to contact these individuals.  The Agency
may be charged with the obligation to obtain specific information
when the Agency creates doubt as to a submitted document's
authenticity and where certain more reliable information is easily
obtainable by the Agency.  However, to criticize the Agency for not
contacting individuals as references who did not submit affidavits
and were not identified by Applicant for the purpose now suggested
is unreasonable.  The material submitted by Applicant is not of the
same calibre as that in the Cherokee case, and that case is
distinguishable on its facts from the case at bar.
     Finally, there is no question that the final Agency decision
is that of the Associate Administrator, and regardless of what
advice he or she may receive within the system on a question of
weighing evidence, it is the Associate Administrator whose decision
is at issue on appeal.  The redacted file in this case, however,
lends credence to the serious weighing that this evidence received
at all levels, and displays that the level of consideration that
was accorded was neither arbitrary nor capricious.  There was
clearly a bona fide evaluation of this evidence, with no showing of
bad faith of any kind, and no showing of reversible error.
     The determination of the Associate Administrator on
Reconsideration, dated, December 14, 1994, finding the Petitioner,
J. Nowak Construction Co., Inc.,  to be ineligible for participa-
tion in the Agency's Section 8(a) program is NOT ARBITRARY,
CAPRICIOUS, OR CONTRARY TO LAW;
     The Motion to Strike the Agency Answer is denied.
     This is the final determination of the Small Business
Administration, and it is binding upon all parties, including those
within the employ of the Agency. 13 C.F.R. Sections 134.32(a)(4)
and 124.210(i).
                                        ___________________________
                                        Nahum Litt
                                        Administrative Law Judge
____________________
 [1]      Sitting by designation, pursuant to the Amended Notice and Order
          dated July 27, 1995.
 [2] Despite Applicant's rather spirited attack on Mr. Alonzo, he was of the
     opinion, as shown in the redacted Agency file, that Sylvia Nowak had met
     the requirements of showing sufficient managerial skills to qualify her
     for inclusion in the program.  Others, who were charged with making the
     decision for the Agency, disagreed and concluded that she did not have the
     requisite skills.