O'Donnell Construction Company, No. MSB-504 (May 11, 1995)
Docket No. MSBE-94-9-26-43

                         UNITED STATES OF AMERICA

                       SMALL BUSINESS ADMINISTRATION

                      OFFICE OF HEARINGS AND APPEALS

                             WASHINGTON, D.C.

IN THE MATTER OF:                  )
                                   )   Docket No. MSBE-94-9-26-43
O'Donnell Construction Company     )
                                   )
                                  

                           NOTICE OF APPEARANCES

For the Petitioner:                          For the Agency

John A. O'Donnell                            John T. Spotila
President                                    General Counsel
O'Donnell Construction                       John Klein
2209 Canning St., N.E                        Agency Representative
Washington, D.C. 20018                       409 3rd Street, S.W.
                                             Washington D.C. 20416

                                  DIGEST

1. Failure to admit an applicant to the Section 8 (a) Small Business Act
program, where the applicant shows almost complete exclusion from a
government bidding process and where the exclusion was based solely upon
race or gender, was arbitrary and capricious;

2. A determination that a white male-owned company cannot be found to be
socially disadvantaged as a matter of law because it has been successful in
bidding and obtaining contracts in any Jurisdiction, was arbitrary and
capricious; and

3. A finding that near total exclusion of a white male-owned company from
bidding and contracting by the jurisdiction in which it is domiciled, and
where discrimination is demonstrated by overwhelming evidence of a
statistical and anecdotal nature, is not social discrimination against its
individual owners and the company, was arbitrary and capricious.

                              FINAL DECISION
                               May 11, 1995
                                     
Nahum 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. 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.

ISSUE:

This case presents the issue of whether a company owned by white males,
which effectively is denied access to bid on contracts in the jurisdiction
in which it is domiciled and seeks to do business, can successfully apply
for inclusion under the SBA 8(a) program. Was the Associate Administrator
arbitrary and capricious in finding that neither of the white male owners
of the Appellant is personally socially disadvantaged, particularly under
the criteria in Section 124.105 (c)(1)(v)(C) , which provides for entry
into the 8 (a) program where there is a business history of social and
economic discrimination?

STATEMENT OF THE CASE:

By letter dated May 11, 1994, the Acting Associate Administrator, Minority
Enterprise Development (Associate Administrator), denied admission to the
Small Business Act's 8(a) program to O'Donnell Construction Company because
neither of its two white male co-owners (50% each) were socially
disadvantaged as that term is defined and used in the statute and the
regulations. The penultimate finding leading to the denial was that neither
of the co- owners, (each is a 50% shareholders) was eligible because neither
provided clear and convincing evidence of specific social discrimination, and,
therefore, since neither is eligible, the company is not eligible. It was
also found that there was no clear and convincing evidence that the
company had been discriminated against by the government of the District
of Columbia. Having found no social discrimination, the Associate
Administrator also found that there was no clear and convincing evidence of
economic discrimination and that O'Donnell Company was not socially and
economically disadvantaged. A timely filed Petition for Reconsideration by
Appellant was denied by order of the Associate Administrator on September
19, 1994. This appeal was filed on September 26, 1994. 2/

APPLICABLE REGULATIONS

The applicable regulations are set out in the Appendix attached hereto.

POSITIONS OF THE PARTIES

     Appellant

Appellant's position is that the Associate Administrator ignored the
evidence of record, distorted and ignored pertinent parts of its own
regulations, misstated and ignored the findings of the United States Court
of Appeals in O'Donnell Construction Co. v. District of Columbia. 963 F.
2d. 420 (DC Cir. May, 1992), and reached a predetermined. result despite
the SBA's own regulations and the clear and convincing evidence of
discrimination flowing from the refusal of the District of Columbia
government to permit Appellant to bid and participate in road paving
activities in the District of Columbia. Not one finding of the Associate
Administrator in the May 11, 1994, denial letter is left unchallenged. A
supplemental pleading was filed on April 12, 1995, wherein Appellant argues
that it is discriminatory to apply a clear and convincing evidentiary
standard to non-minority companies which seek admission to the program.

Agency

The Agency presses philosophical and legal arguments that the SBA program
is not designed, and certainly the SBA is not bound, to find social
disadvantage of white male owners even if the District of Columbia
initially excluded them, i.e., discriminated against them in the bidding
process. An affirmative finding in favor of Appellant, the Agency claims in
its Answer to the Petition (pp. 10 and 11) might open the door to other
similarly affected white male companies. 3/

The Agency argues that this is not a novel issue that the applicable law
here is different from the law concerning constitutionality of a program,
and that nothing Appellant raises warrants upsetting the Associate
Administrator's determination. That neither white male owner is socially
disadvantaged and that the company is neither socially nor economically
disadvantaged. The Agency takes the position that no matter what level
of discrimination may exist in the District of Columbia against white
male-owned companies, and whether the level is constitutional or
unconstitutional, such discrimination has no bearing on eligibility of a
white male-owned company for the SBA 8(a) program. The Agency urges that
the only criteria here is whether those seeking inclusion are personally
discriminated against by society as a whole. The effect of the Agency's
understanding of the applicable law is that exclusion because of racial
bias, no matter how concerted and complete, cannot justify admission of a
white male-owned and operated company to the SBA program if (1) the
individual owners do not show personal social disadvantage, and (2) the
owners or the company can compete successfully in some jurisdiction
elsewhere or in another market. 4/

The Associate Administrator also points out that the Circuit Court
decision, which set aside the District of Columbia's affirmative action
program for minority and disadvantaged business, did not make a finding
that Appellant's owners were socially disadvantaged. The Associate
Administrator argues that the evidence submitted by Appellant that the two
white male owners were and are socially disadvantaged is not clear and
convincing, and, absent such showing, neither is socially disadvantaged as
that term is used in the regulation. Relying upon the admission of the
owners that they were not socially disadvantaged in the sense of being
personally subjected to  "... chronic and substantial discrimination due to
cultural ethnic or social background...", the Associate Administrator
further argues that neither owner meets the threshold requirement of
showing personal disadvantage as a white male. it is argued, moreover, that
the submitted proof of discrimination in the bidding process does not
disclose chronic disadvantage, that Appellant's success at bidding and
obtaining contracts in other jurisdictions shows that Appellant has access
to financial markets, and that the finding that Appellant should be denied
access to the SBA program is not arbitrary and capricious.

The Agency concedes that if either of the brothers was socially
disadvantaged he would also, in this instance, be economically
disadvantaged.5/

The Agency in its response to Appellant's supplemental petition on April
20, 1995, argues that the application of the clear and convincing
evidentiary standard to non-minority applicants is consistent with the
legislative history of the Act and that this standard has been upheld by
Article III courts.

FACTS

John O'Donnell and Arnold O'Donnell are 50% co-owners of O'Donnell
Construction Company, which is incorporated in the State of Virginia and
domiciled in the District of Columbia. They have sought to bid on road
paving and other contracts in the D.C. metropolitan area for over ten
years. They have had limited success in obtaining contracts in Virginia and
Maryland. All three jurisdictions have minority set-aside programs which
both set aside a specific proportion of contracts for defined minorities
and provide more favorable bidding process, financing, and general support
for those groups which fall within the definition of the program.
Appellant, however, has not been able to bid on most D.C. contracts.
Neither has Appellant received any contracts in the District of Columbia
except as a partial sub-contractor to a contract let as a minority
set-aside.

In support of its claim of social disadvantage on its application for
eligibility, Appellant has included documentation describing denial of
access to construction contracts by the District of Columbia during the
years 1987 to 1993. During the fiscal years 1987 through 1990, Appellant
was denied access to bid on 92 percent of all street construction work
awarded by the District of Columbia Public Works agency. The District of
Columbia Disadvantaged Business Enterprise Program (DCDBEP) denied
Appellant access to submit bids on hundreds of construction projects
totaling more than 98 percent of the construction projects awarded in the
District of Columbia because the company is owned by white males. Prior to
the denial of access by the DCDBEP, Appellant was denied access to bid on
construction contracts under the District of Columbia Minority Business
Opportunity Commission.

In its application for eligibility Appellant submitted evidence of numerous
specific accounts of discrimination by the government of the District of
Columbia:

     November, 1987: Project Manager for the Barry Farms Project told
Appellant not to bother with further pricing because the work would not be
awarded to O'Donnell because the owners were white;

     October, 1988: O'Donnell received a letter of intent from the general
contractor for a housing redevelopment project in the District of Columbia;
O'Donnell was not awarded most of the work due to a mandatory minority
business subcontracting requirement;

     May, 1991: the high bidder, a minority firm, was allowed to change
their bid to become the low bidder, and was awarded the contract over
O'Donnell, the low bidder, at the public opening; this contract was for a
project at the Washington Cathedral, which had established a quota for
District of Columbia certified Minority Business Enterprise contractors;

     November, 1991: First Virginia Bank declined to extend credit to
O'Donnell Construction Company due to declining revenues and insufficient
work on hand to support the loan request;

     June, 1992: Arnold O'Donnell was denied membership on a committee of
the largest Washington area association of contractors because the chair
believed that his presence would offend minority members of the committee;

     August, 1992: O'Donnell was the low bidder on a section of a project
for the District of Columbia Housing Finance Agency; the project was
awarded at a higher cost to a District certified Minority Business
Enterprise;

     July, 1993: First American Bank denied to extend further credit to
O'Donnell until significant corporate financial improvement improved and
adequate collateral would be available;

Other acts of discrimination are apparent from the record supporting social
discrimination. During testimony before a District of Columbia City Council
meeting, both O'Donnells were called "greedy racists" by a former
contracting officer for the District of Columbia Government. The O'Donnells
have received several telephoned threats of physical and financial injuries
solely because they are white males. Comments were made during meetings
held for small and minority owned businesses in the District of Columbia,
where the O'Donnells have been labeled as evil and racist. (See also
footnote 10 infra at p. 12). Those persons making derogatory statements
were supported by individuals inattendance at these meetings. Leaders of
various organizations on numerous occasions attempted to distribute
information that the O'Donnells were racists.

DISCUSSION

This case raises three legal issues: (1) what is the geographical universe
that governs a determination of discrimination in American society; (2)
whether either of two white males must individually show social
discrimination as 51% owners of the company; and (3) whether meeting all of
the requirements of discrimination under the business history standard in
the regulations, both statistical and anecdotal, requires that the
Appellant be admitted into the SBA 8(a) program.

At the outset, this case cannot be considered in a vacuum. By its May 5,
1992, decision The United States Court of Appeals for the District of
Columbia entered an order, supra, setting aside the District of Columbia's
statutes and regulations which it held unconstitutional, finding:

     We hold that the O'Donnell Construction Company has made a substantial
     case that the District is violating O'Donnell's Fifth Amendment right
     to equal protection of the laws and the district court should have
     enjoined the District, during the pendency of this suit, from enforc
     ing the Act in a manner that deprives O'Donnell of the equal
     opportunity to compete for city road construction contracts.

(963 F.2d. 420 at p. 421).

In deciding that injunctive relief should be granted, the Court found not
only that Appellant was likely to succeed on the merits of its case, but
that the continued discrimination against it in the bidding scheme devised
and administered by the District of Columbia was causing Appellant
irreparable harm which it would not be possible to recoup ( 963 F.2d. 420
at p. 428).

The prime issue of what weight should be accorded to the O'Donnell case is
not the finding of standing by the District Court, although that finding
does depend on an underlying base of discriminatory practice, but upon the
issuance by the Circuit Court of injunctive relief which is dependent upon
the finding that Appellant suffered discrimination, that the discrimination
was substantial, and that Appellant would suffer irreparable harm if the
discrimination continued during the pendency of either further litigation
or the District passing statutes which were constitutional. The Circuit
Court decision in O'Donnell cannot be viewed in the abstract. The facts in
that case are the same facts as in this case and, while used to analyze a
different issue, cannot blithely be ignored. Those findings are persuasive,
even if not legally dispositive, absent a showing on this record that
different facts are presented here than were presented there.

Aside from denying that the Circuit Court found that the O'Donnells had
been subject to discrimination, the Agency on brief states a more stringent
showing is required than merely meeting the Circuit Court's standard for
injunctive relief on the basis of discrimination. Its argument is that the
finding of discrimination attached only to the company and not to the
owners. This is a "straw-man argument" and relies on the fiction constantly
reiterated by the Agency that the discrimination against the company does
not attach to the two owners even though they are the sole owners and are
the company. The Court found that the O'Donnell Construction Company and
its two owners had been discriminated against because they are white males.
This is clearly a finding of social and economic disadvantage. Calling it
something else or claiming such disadvantages do not personally attach to
the owners is not reasonable.  The Circuit Court's decision cannot simply
be brushed away. Regardless of whether the Circuit Court's decision is
persuasive or dispositive, each of the issues raised will be discussed
seriatim. on the basis of the evidence in this record.

A. Geographical Universe.

The first question which must be addressed is whether the geographical
universe for discrimination is the District of Columbia, the entire United
States, or perhaps the entire world. The relevant regulatory language reads
(see Appendix):

     The individual's social disadvantage must be rooted in treatment which
     he or she has experienced in American Society, not in other countries.

Appellant argues that the Associate Administrator ignored the plain meaning
of this regulation which compares discrimination in American society with
discrimination in other countries. The plain meaning of the regulation is a
comparison between jurisdictions in the United States, on the one hand,
and, on the other, discrimination in other countries i.e. foreign as
distinct from domestic. The compelling logical conclusion is that as a
matter of law the American society at issue is the jurisdiction where
Appellant resides and is domiciled. otherwise, the term "in other
countries" has no meaning. But even if this phrase were absent, the regula
tion is overly broad if used to exclude an applicant because somewhere in
some jurisdiction in the United States "as a whole" discrimination is not
"rooted" against a particular group or minority.

The Associate Administrator cites no cases in support of his position.
Under the criteria employed by the Associate Administrator, no white male
or company 51% owned by white males which is successful in obtaining work
in some jurisdiction, presumably world-wide, could ever be found socially
disadvantaged. Accordingly, the argument is that neither the size, the
jurisdiction, nor the policy of the District of Columbia is relevant as
long as there is some jurisdiction, presumably in the United States, where
Appellant can bid and obtain contracts.6/ The thesis seems to be that the
term "whole" must be inferred as being in the regulation and considered as
tantamount to "anywhere" in the United States in analyzing discrimination
against a non-preferred applicant. Significant discrimination in any or
many jurisdictions would not present clear and convincing evidence if "all"
of society, apparently every jurisdiction, does not similarly discriminate.
But discrimination is rooted out in jurisdictional pockets no matter how
small, and if one accepts the Associate Administrator's rationale here, it
is at odds with how all of the anti-discrimination laws work.

The determination of the geographical universe here turn's upon whether the
regulatory term "rooted in American society" applies to the District of
Columbia as a separate entity or is applicable to the United States as a
whole. First, the District of Columbia is an entity treated as a separate
jurisdiction under the federal system even if it is not a State. On its
face, the District of Columbia is a society defined by the regulation.
Second, Appellant is not a fly-by-night interloper or a carpetbagger
attempting to cash in on the basis of a fabricated legal issue. There is
simply no serious question that Appellant is a District of Columbia company
doing business as best it can in the District of Columbia. Third, there is
no definition in the regulations which describes any limit or breadth of
geographic jurisdiction for purposes of limiting or expanding eligibility
on the basis of "rooted in American society". Admittedly, the
discrimination addressed when this statute was enacted was to rectify past
practices of discrimination against certain groups which had been
historically disadvantaged by American society. The regulatory language in
turn provides for admittance to those not in the preferred group who are
discriminated against. The clear wording of the entire statutory scheme
patently seeks to reverse the effects of discrimination no matter where it
occurs or against whom it occurs. As stated above, there are no geographic
limits upon the size of the government entity which would be covered under
the anti-discrimination laws. Nor are there limits on a geographical basis
for finding that the universe for determining discrimination for any
company should be broader than a defined jurisdiction of a State or the
equivalent of a State.

Unless the statute is amended and the regulations rewritten to establish a
legal and enforceable geographic rule more limited than a State or its
equivalent, the area for consideration of discrimination is the State or
its equivalent. Appellant can not have a crabbed geographical
jurisdictional policy applied to it solely because of its white male
ownership.7/ The determination that the geographical universe for
discrimination here is broader than the discriminatory policy of the
District of Columbia is, therefore, arbitrary and capricious. Appellant
cannot be denied admission to the SBA 8(a) program because it can bid, and
sometimes obtain contracts, elsewhere or in other jurisdictions which may
not discriminate against it in the same manner as in the District of
Columbia.

Nor does the fact that by their nature all set-aside and contractual
arrangements for encouraging defined minority enterprises are
discriminatory vis-a-vis all non-favored groups (discussed more fully in
the discussion below)8/ provide any support for the Agency position here
that there are no precise geographical boundaries which define an area of
discrimination for American society. The objective of all these programs is
to make the system more fair and provide opportunities to those who are
disadvantaged. The objective is not total exclusion of a business merely
because of race and gender. Appellant does not argue that legitimate
set-asides would warrant admission to the program: it argues that the
totally unfair application of the set-aside scheme by the District of
Columbia, coupled with overt and described hostility towards it as a white
male-owned company, warrants admission. The Agency's argument is chiefly
philosophical, and is not supported by the plain language of the Act and
the regulations. It cannot form a basis f or the proposition that there is
no geographical limit on where an applicant not favored must compete. Last,
the Agency's view would require that if an applicant was either (1) totally
unsuccessful in bidding on or obtaining contracts elsewhere or (2) unable
or disinclined to compete in other jurisdictions, it would have to be
admitted to the program. This, of course, was not intended by the Act or
the regulations.

B.   Individual Social Disadvantage.

The Associate Administrator's finding that the Appellant must show that
each of the two white male owners of the company is individually socially
disadvantaged is not supported by any of the regulations cited. The
Associate Administrator atomizes the process to reach determinations which
historically have been used to protect the program from invasion by
non-disadvantaged members of society masquerading as minority-owned firms.
A review of how the Agency has applied its 51% ownership criteria shows
that its application here is completely out of context. That test appears
to be used uniformly, and it would seem, from the cases found, to be used
solely to preclude those not having a preference as a statutorily
recognized minority from sneaking into the program through one of the
presumptions. It is not even clear from reading the Associate
Administrator's Answer to the Petition why the determination was reached on
the issue of 51% ownership inasmuch as there is no dispute that 100% of the
company is owned by white males. In the context of this case, it is
meaningless to analyze whether one of the two is socially disadvantaged:
the basis of claimed discrimination by the Company is a complaint that a
preference group, having control of a jurisdiction, is discriminating
against white male-owned companies. The effect of applying this test here
is to condone discrimination by applying an analysis used to protect the
program from fraud of those trying to claim status to which they are not
entitled. The application of this test to the facts here is arbitrary and
capricious.

C.   Business History.

The underlying rationale of the Associate Administrator's analysis of the
Appellant's "business history" commences at the same elemental point as its
argument on geographical jurisdiction, i.e. that eligibility in the SBA
program can never flow to those discriminated against by jurisdictions
having affirmative action programs. since such programs, the argument goes,
could always be found to have some element of discrimination inherent in
their very substance, all companies which are not in the group favored
selectively for special treatment, essentially as named minorities, would
otherwise be eligible. The Associate Administrator, therefore, views all
proof of discrimination in bidding on contracts in jurisdictions having set
aside or similar programs as not relevant to this determination. The denial
was entered because neither of the two owners "convincingly" proved
personal or business bias against themselves or social disadvantage under
the individual criteria normally used by the SBA.9/ As discussed below,
however, there is significant and unrefuted evidence of discrimination
against the O'Donnell Company in its business history, on almost the same
evidence before the Circuit Court in the O'Donnell case, supra, to prove
discrimination by the District of Columbia in application of its statute as
well as that the statute was unconstitutional.

At several places in its petition Appellant suggests that the Associate
Administrator is biased and that the decision was predetermined without
regard to the evidence. Normally, the presumption of administrative
regularity would obviate any need to address such an allegation, but here
one of the findings by the Associate Administrator not only gives this
allegation credence but also undermines the bona fides of the Associate
Administrator's other findings. The Associate Administrator found (page
three of the May 11 letter):

     Even in those limited instances where allegations of discriminatory
     practices against you and your brother are based upon statements
     attributed to third parties, there are no statements or confirmation
     from those parties in your application.

Perhaps this is just an imprecise statement of the evidence which the
Associate Administrator deemed necessary to be convincing, but the unartful
expression of the needed evidentiary showing compromises all of the
findings made in this case. One could almost take official notice of the
inability of a person slurred racially or on grounds of gender to obtain an
affidavit from the person who made offensive remarks --- particularly when
the affidavit would in all likelihood provide clear and convincing evidence
for administrative discipline and an action in tort against such individu-
al. 10/ It is also noted that it is difficult, if not close to impossible,
to obtain corroborating statements from others in an office even if not
required of the person who may have uttered the defamatory remarks if the
occurrence was in an office setting that is hostile to an applicant. No
finding is made here on the allegation of bias, but it is clear that
Appellant is not suffering from paranoia.

The Associate Administrator cites three cases in support of its position
that it was not acting in an arbitrary and capricious manner. In Software
Systems Associates, Inc. , Doc. No MSBE-90-6-410, Decided February 13,
1991, the Administrative Law Judge sustained the Associate Administrator's
decision that Appellant had not shown social disadvantage on the grounds
that her anecdotal evidence of gender bias was insufficient. The Judge
found that the sole issue was whether there was "clear error of judgment"
in reaching the decision in the case. Finding that there was only one
contract at issue where financing was alleged affected by gender, he
determined that there was no other evidence in the business history of the
Appellant to warrant any other finding (Decision p.31). The simple factual
discussion, lack of any statistical evidence, and rather weak showing in
that case offers no help here except as a restatement of the standard of
review.

In Columbia General. Inc., Doc. No. MSBE-90-4-9-8, Decided November 14,
1990, the judge rejected most of the arguments as post hoc
rationalizations, dismissed several of Appellant's arguments as vague,
upheld the argument that the Associate Administrator did not have to reach
the issue of economic disadvantage if there were no finding of social
disadvantage, and ultimately upheld the Agency decision on the basis of the
standard of review (Decision P. 17). In Frontier Company of San Antonio,
Docket No. MSBE-90-6-25-12, Decided April 23, 1991, the judge upheld a
finding that the evidence showed that the Appellant there could not compete
because of his own inadequacies, not because of prejudice due to his
handicap. The case turned solely on the facts. None of these cases stands
for anything other than that the facts in each case are controlling and
that the standard of review places a heavy burden on an appellant.11/

The Associate Administrator's determination that Appellant's business
history does not show economic discrimination is not sustainable on any
rational grounds. Appellant does not have access to District financial
markets, cannot bid on a significant percentage of projects in the
District, and is not on a reasonably fair playing field within the context
of legitimate affirmative action programs. 12/ Here the f acts are that the
Company, and perforce its two sole owners, are at an economic and social
disadvantage in the District and the O'Donnell Company, as a company, is
socially and economically disadvantaged in the District of Columbia. On the
facts of this case, the decision to deny Appellant eligibility on the basis
of business history is arbitrary and capricious.

The over-technical application of the regulations by the Associate
Administrator in limiting the ability of Appellant to enter this program,
moreover, has turned logic upside down. 13/ For example, ignoring that
O'Donnell Company was not permitted to bid on almost all of the contracts,
but then minutely dissecting the small number of bids Appellant was
permitted to make, does suggest a mind-set against Appellant. The Associate
Administrator found that failure to obtain contracts on six bids over a six
or seven year period where they were permitted to file bids did not show
chronic discrimination. But, not being able to bid on 98% of the contracts
for six or seven years is chronic discrimination. As a company" regardless
if one believes that there is convincing evidence of discrimination as to
any or all of the six individual bids in the District which the Associate
Administrator analyzed, the overall discrimination as to the entire bidding
process is clear, convincing and simply overwhelming in showing
discrimination against the company. In other words, Appellant was and is
being discriminated against as a company because it is owned by white
males.

The discrimination displayed on this record as a whole goes well beyond any
rationalization that such discrimination is tied to set aside programs,
whether constitutional or unconstitutional or whether legitimately or
illegitimately administered. Unabated discrimination by the District of
Columbia against Appellant is the business history of this case. As stated
earlier this is not a situation where the affirmative action program
creates a fairer and better playing field, but one of almost total
exclusion on impermissible grounds of race and gender. This case thus
represents an aberration where otherwise sanctioned affirmative action
programs become not a remedy for valid societal purposes but an
impermissible total exclusion of a particular segment of society from fair
treatment.14/ Appellant has been excluded from the District of Columbia
bidding process because of a collective personal social discrimination; it
has been excluded improperly because of the identity of its owners as
members of a group without regard to their individual qualities.

Last, the Associate Administrator states that if Appellant is admitted to
the 8(a) program, every white male-owned company which participates in an
affirmative action bidding program would be eligible. This is simply not
the case. The facts here display a systematic and impermissible denial of
participation in bidding on projects within the jurisdiction where it is
domiciled a total exclusion from a process and not simply providing an
additional advantage to permit greater access or redress of prior
discrimination of specific classes of small business enterprises. Moreover,
it is hoped that the Associate Administrator is in error in his belief that
there are a multitude of similar cases where affirmative action programs
have gone so far awry as has the program in the District of Columbia, where
the program was found to be unconstitutional in both its passage and its
application. But even if that were the case, and there can be shown to
exist other similarly situated domiciled white male-owned companies that
are being discriminated against and treated like Appellant Company has been
treated by the District of Columbia, that is not a basis to deny Appellant
access to a program which is designed to redress artificial and unfair
barriers to business entry caused by social and economic discrimination.

Certainly those who framed the original legislation to aid small businesses
that were being denied fair access to contract bidding and financial
resources did not envisage that jurisdictions, some large cities larger in
population than many States, would use social policies designed and almost
universally approved as a fair remedy, to adopt exclusionary,
discriminatory procedures. But those are the facts in this case. The Act
would need to be amended and the regulations rewritten in order to deny
relief to an applicant similarly situated to Appellant here. Section
124.105 sets out tests which this Appellant meets in every particular.
These tests were set up to permit participation where discrimination
occurred, and it is no less a concern because it is a white owned company
bidding for contracts in a majority, minority controlled jurisdiction than
vice-versa. It may not be what was intended, but it is what has been
clearly expressed and it is difficult to believe that those who intended to
right a wrong could reach any other result.

One additional procedural matter must be addressed. Appellant's last attack
on the standard of proof appears to be motivated more for the purpose of
creating an appealable right than an expectation that a ruling in its favor
would be entered. In view of the decision above on the merits, however,
there is no need to rule on this supplemental motion and it is dismissed as
moot.

CONCLUSION

The May, 11, 1994, determination denying 8(a) entry eligibility to the
Petitioner, O'Donnell Construction Company, is not in accord with the law
and the pertinent regulations, and is not reasonably based upon the record
that was before the Acting Associate Administrator at the time that
determination was made. Accordingly, I find that the determination IS
ARBITRARY, CAPRICIOUS AND CONTRARY TO LAW.

This constitutes the final decision of the Small Business Administration.
it is binding upon the Petitioner, the Agency and its employees. See
Section 124-210(i).

                                        Nahum Litt

                                        Administrative Law Judge

                                 APPENDIX
                                     
                          APPLICABLE REGULATIONS

Section 124.103 of the regulations provides:

Except for concerns owned by Indian tribes an applicant concern must
be one which is at least 51 percent unconditionally owned by an individual(s)
who is a citizen of the United States ... and who is determined by the SBA to
be socially and economically disadvantaged.

Section 124.105 (a) of the regulations provides:

General. Socially disadvantaged individuals are those who have been
subjected to racial or ethnic prejudice or cultural bias because of their
identities as members of groups without regard to their individual
qualities .....

Section 124.105 (C) (iii) provides:

The individual's social disadvantage must be rooted in treatment which he
or she has experienced in American Society, not in other countries.

Section 124.105 (c) (1) (v) of the regulations provides:

The individual's social disadvantage must have negatively impacted on his
or her entry into and/or advancement in the business world. SBA will
entertain any relevant evidence in assessing this element in an applicant's
case. SBA will particularly consider and place emphasis on the following
experiences of the individual, where relevant:

(A) Education ......

(B) Employment ......

(C) Business History. SBA shall consider, as evidence of an individual's
social disadvantage, unequal access to credit or capital; acquisition of
credit or capital under unfavorable circumstances; discrimination in
receipt (award and/or bid) of government contracts; discrimination by
potential clients; exclusion from business or professional organizations;
and other similar factors which have impeded the individual's business
development.

Both parties admit that Appellant is not a member of a designated group
where discrimination is presumed and that it is necessary for Appellant to
come under the provisions of Sections 124.103 and 124.105 (c) (1) (v).

_______________________

1    Sitting by designation pursuant to notice issued March 7, 1995.
     Formerly Chief Administrative Law Judge, U.S. Department of Labor.

2    A Motion For Summary Judgment was denied by order of the Administra
     tive Law Judge dated December 2, 1994.

3    In a chamber of horrors type-argument, the Agency contends that other
     white male-owned companies who are affected by constitutionally
     approved set-aside programs would be eligible if Appellant were found
     eligible and the criteria for determination for social disadvantage on
     an individual basis were not applied.

4     Neither party has cited a statutory or regulatory definition of the
     term "social disadvantage". The Agency relies upon its imprecise
     regulations to flesh out what it describes as the criteria which it
     will examine to reach such a determination. As shown below, the Agency
     also relies on certain decisions of administrative law judges which
     have sustained the Agency's determination of facts in specific cases.
     These cases are instructive but are not precedents as that term is
     normally used.

5    Appellant had requested discovery in order to determine their economic
     disadvantage, apart from the issue of their social disadvantage.

6    The Associate Administrator has not addressed the question as to
     whether the status or size of the District of Columbia is significant.
     The District of Columbia has a larger population than many States, as
     Appellant points out. In the recent past the District has argued that
     it is a State and should have appropriate status as a State.

7    Would total exclusion in a two State area represent discrimination?
     or, would the discrimination be acceptable if it were only the entire
     Southwest?

8    See infra, p. 11, C. Business History

9    Education, employment, or various aspects of business history.

10   The testimony of Edward L. Nelson, a member of the District of
     Columbia's Contractor's Association, before the District of Columbia's
     Department of Public Works Oversight Committee, is in evidence and
     displays clear racial bias and animosity toward Appellant as white
     males who he argues cannot make a living from the available contracts
     which they could bid on outside of the District of Columbia. His
     testimony not only shows bitterness toward Appellant for trying to
     break down the few opportunities he believes that minority contractors
     have in the area, but the contempt in which he holds the O'Donnell
     brothers. He personally believes them to be "white racists" and shills
     for the non-minority contractor's association. Whether they are shills
     or white racists is not relevant to whether the O'Donnells have been
     discriminated against because of race or gender.

11   In Equal Employment Opportunity Commission v. Sears Roebuck & Co., 628
     Fed. Supp. 1264 (N.D. Ill., 1986), the Court concisely set forth the
     use of evidence, statistical and anecdotal, in discrimination cases.
     This case is instructive regardless of what standard is employed on
     review.

12   The Circuit Court's entering an injunction against the District of
     Columbia apparently has not wrought significant changes in the way the
     District treats Appellant. Perhaps in the future the Court's
     injunctive relief may benefit Appellant, but the only evidence in this
     record is that as of the time the Associate Administrator decided this
     case, nothing had changed.

13   A Broadway play produced in the 1950's opens with the lead character,
     poised in front of closet door with a drawn bow and arrow, declaiming
     that since the arrow could only travel half the distance between where
     it started and its destination at each moment in time, the arrow could
     never, logically, reach its target. The arrow, of course, when
     released, penetrates the door and impales a rabbit, proving once more
     that perceived logic and the real world often part company.

14   An elegant and concise summary of the current law is set out in the
     concurring opinion by now-Associate Justice Ginsberg (963 F.2d. at
     p.429).