A Answer, Inc., No. MSB-462 (April 18, 1994)
Docket No. MSBT-94-1-18-4

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

IN THE MATTER OF:             )
                              ) Docket No. MSBT-94-1-18-4
A Answer, Inc.                )

                           APPEARANCES

For the Petitioner:                For the Agency:

Ms. Patsy Reese                    John T. Spotila, Es4.
President                          General Counsel
A Answer, Inc.                     David A. Fishman, Esq.
3026 San Bruno Avenue              Attorney for the Agency
San Francisco, CA 94134            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 an 8(a) Program termination action, initiated in accordance
with the provisions of Section 124.209 of the regulations (unlike
a suspension action, initiated pursuant to the provisions of the
regulation at Section 124.211), the Petitioner has the burden of
proving, by preponderant evidence, that the Agency's finding of
"good cause" for the termination of the Petitioner's Program
participation was arbitrary, capricious or contrary to the law or
the regulations. 13 CFR 124.209(a); 13 CFR 124.210(h)(1).

"Good cause" for a participant's Program termination may be based
upon, among other things: a demonstrated pattern by the Program
Participant of failing to make required submissions or responses
to the Agency in a timely manner.

Evidence of the Program Participant's having failed or refused to
accept Certified Mail, with a Return Receipt Requested, from the
Agency will obviate the necessity of the Agency's having to jus
tify the propriety of its procedure in effecting notification of
the proposed termination on an 8(a) Program Participant.

                         FINAL DECISION

                         April 18. 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.

Issue

Is there a reasonable factual basis and an evidential rationale
for the conclusion of the Associate Administrator 1/ in the re
cord that was before her at the time she made her determination;
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 Section 124.209 provide,
insofar as is pertinent here:

     (a) General. Participation of a[n] 8(a) business con
     cern 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.

Further, the regulations at Section 124.209(b) require written
notification 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 45day
delay shall be granted by the Director of the Division of Program
Certification and Eligibility, 3/ "where appropriate," and a
recommendation of the Participant's termination is then submitted
to the Associate Administrator by the D/DPCE.

Facts and Procedural History

A Answer, Inc., a California corporation engaged in "general
contracting," is owned and controlled by Patsy Reese, a socially
and economically disadvantaged individual; on that basis, the
firm was admitted as a Participant in the Agency's Section 8(a)
Program on January 28, 1984. Exhibit V-2, 638/639. See also
Agency's Answer, page 2.

As a Program Participant, the Petitioner, A Answer, Inc., was
required by its participation agreement with the Agency, and by
the regulations at Sections 124.209, 124.303 and 124.501, to
submit periodic financial statements as well as other reports.
The administrative record adduced by the Agency indicates that,
according to the San Francisco Assistant Regional Administrator's
notation of January 28, 1993, the Petitioner "has ignored three
letters mailed to her [sic] on September l, 1992, December 10,
1992, and December 29, 1992, requesting the 8(a) Annual Update
[form], current financial statements, and the Representatives
Used and Compensation Paid...[form]" and "has not submitted [the
required] financial statements since December 31, 1991 in spite
of numerous telephone requests and letters." Exhibit V-1, 52/53.

On April 7, 1993, the Petitioner was notified of the Agency's
intention to "terminate [its] 8(a) program participation" in
accordance with the provisions of the regulation at Section
124.209, because of the Petitioner's:

     1) Failure...to continue to maintain its eligibility for
     program participation, [and its] demonstrated pattern of
     failing to make required submissions or responses to the
     [Agency] in a timely manner, including:

          Failure...to provide [the Agency] 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 [the
          Agency] with requested tax returns, reports, or other
          available data within 30 days of the date of request.

     2) Failure...to provide documents or certifications of
     continued eligibility or otherwise respond to requests for
     information relating to the section 8(a) program... within
     the time frames provided for in the requests.

          You failed to respond to the San Francisco District
          Office's request for the 8(a) Annual Update. A
          certified letter was sent to you on September 1, 1992,
          and a reminder letter was sent to you on December 10,
          1992.

          In addition, you failed to respond to the San Francisco
          District Office's request for the Semi-Annual Report on
          Representatives Used and Compensation Paid for Services
          in Connection with Obtaining Federal Contracts. A
          letter was faxed to you on December 29, 1992. [Exhibit
          V-1, 39/40.]

By the terms of the notification, the Petitioner's response to
these allegations was required within 45 days. The record
indicates that the April 7, 1993 letter was received by the
Petitioner on April 9, 1993; no response was made as of July 12,
1993; and, on July 16, 1993, the Associate Administrator's
representatives recommended termination of the Petitioner's
participation. Exhibit V-1, 37/38.

The Petitioner submitted certain financial records and a signed
"Representatives-Used" form to the San Francisco Regional Office
on July 30, 1993. Exhibits V-1, 21 to 31.

Apparently without knowledge of the Petitioner's July 30, 1993
submission, the D/DPCE notified the Petitioner of the Agency's
intention to terminate its Section 8(a) Program participation in
a letter dated September 2, 1993. The D/DPCE referred to the
April 7, 1993 letter and stated: "Our records indicate that A
Answer, Inc. did not respond to our San Francisco Regional
Office's letter of notification." 4/ The Petitioner was again
given 45 days to "submit, in writing, information which will
eliminate the grounds for the proposed termination or explain why
the proposed grounds should not justify termination." The
Petitioner was also advised of its right to seek a meeting to
discuss the proposed termination, and a voluntary Withdrawal
Agreement was enclosed for execution by the Petitioner, "should
you wish to voluntarily withdraw from the 8(a) Program." Exhibits
V-1, 16 to 19.

The September 2, 1993 letter, sent by Certified Mail, with a
Return Receipt Requested, was "unclaimed" by the Petitioner when
delivery was attempted by the Postal Service, and the Agency was
notified of that fact on either September 14, 1993 or September
24, 1993. Exhibits V-1, 13 to 15. Nevertheless, by memorandum
dated December 21, 1993, the Director, DPCE, notified the
Associate Administrator that "A Answer, Inc. failed to respond to
the second letter of notification [which he said was dated
September 9, 1993];" he recommended "that the 8(a) program
participation of A Answer, Inc. be terminated and that the firm
be provided with a Notice of Termination" by the AA/MSB&COD.
Exhibit V-1, 12.

In the meantime, on September 3, 1993, copies of IRS Forms 1120-A
and 4562 were submitted by the Petitioner to the San Francisco
Regional Office. Exhibit V-1, 33 to 36. The Petitioner's Vice
President asserted that the Agency's April 7, 1993 letter "was
not received," while admitting that "[o]ne of our people must
have sign [sic] for [it] and misplaced it." Another reason given
for the Petitioner's delay in responding to the Agency's April 7,
1993 letter was: "a virus in [the] computer." Exhibits V-1, 21; V-
1, 33.

In a letter dated December 22, 1993, the D/DPCE, notified the
Petitioner of his December 21, 1993 recommendation to the
Associate Administrator because "A Answer, Inc. failed to respond
to the second letter of notification." Exhibit V-1, 5.

In a letter dated December 30, 1993, the AA/MSB&COD notified the
Petitioner of its termination and included information concerning
its appeal rights under the provisions of the regulation at
Section 124.210. Exhibit V-1, 3. That letter was delivered to the
Petitioner on January 3, 1994, according to the Return Receipt.
Exhibit V-1, 4.

The Petitioner's letter of January 10, 1994, appealing the Asso
ciate Administrator's termination of its Section 8(a) Program
participation, was received in this Office and docketed on
January 18, 1994. It reads, in pertinent part, as follows:

     It appears our undated records were delivered to the local
     San Francisco Office before they could be processed into the
     system at the local level the Headquarters Office had been
     notified the local office was not in receipt of the records
     [sic]. The managing officer and president had been out of
     country prior to this decision [sic].

     We find it difficult to believe after eight (8) years into
     the program [sic]. We are systematically begin terminated
     [sic].

                          * * * * * * *

     We would like to be reinstated into the program and given
     the same consideration as the others who are granted 8(a)
     program privilege [sic].

On March 30, 1994, Counsel for the Agency filed its Answer to the
Petition. 5/ The Answer included a motion that this Office
"decline jurisdiction" on the basis of Section 124.210(d) of the
regulations, which provides, so far as is pertinent here:

     The Administrative Law Judge selected to preside over an
     appeal shall decline to accept jurisdiction over any matter
     if:

     (1) The appeal does not, on its face, allege facts that, if
     proven to be true, would warrant reversal or modification of
     the determination....

Counsel argues that "the Petitioner has admitted to the alle
gations set forth in the SBA's termination letter. Specifically,
the Petitioner has failed to submit an updated business plan and
has failed to timely submit requested information, including fi
nancial statements." Because of the need to address what seems to
have been ineptness in the handling of this termination action by
the Agency's D/DPCE, the motion that I decline jurisdiction will
be denied.

The Agency's Counsel argued that "[t]he Petitioner has failed to
assert any basis for a finding that the [Agency's] termination of
[the] Petitioner from the 8(a) Program was arbitrary, capricious
or not in accordance with the law," inasmuch as the Agency

     properly noticed the Petitioner of the pending termination
     proceeding and properly determined from the record before it
     that the Petitioner failed to provide the updated business
     plan and continuously failed to provide requested
     information, including updated financial statements, in a
     timely fashion. The record fully supports the [Agency's]
     termination.

                          * * * * * * *

     The repeated failure of the Petitioner to timely submit the
     required financial statements constituted good cause for the
     termination of the Petitioner from participation in the
     Section 8(a) program pursuant to the provisions of Section
     124.209(a)(6) of the regulations....

                          * * * * * * *

     Additionally, the Petitioner in its appeal does not provide
     any basis for not timely submitting the mandatory financial
     information. The Petitioner... asserts that the
     information...was provided. While the Petitioner did submit
     financial statements for 1992, these were submitted on
     August 2, 1993...eight months late. This submission is not
     timely and is not permitted under either the...regulations
     or the Petitioner's participation agreement.

Regarding the required semi-annual written report to include a
listing of any agents, representatives, attorneys, accountants
consultants and other parties receiving fees, commissions or
compensation of any kind to assist the-Program Participant in
obtaining Federal contracts, Counsel points out that this was
submitted by the Petitioner "over seven months late," without any
adequate explanation for the tardiness.
Discussion

In an 8(a) Program termination action, initiated in accordance
with the provisions of Section 124.209 of the regulations, the
Petitioner has the burden of proving, by a preponderance of the
evidence, that the Agency's action in finding good cause for the
termination of the Petitioner's Program participation was arbi
trary, capricious or contrary to the law or the regulations. See
the Matter of John J. Lecher dba Lecher Construction Company, No.
429 (May 19, 1993). 6/

Good cause for termination under Section 124.209 may be based on,
among other things, a demonstrated pattern of failing to make
required submissions or responses to the Agency in a timely
manner, including: failure by the concern to provide the Agency
with the 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 report
ing period and failure to provide the Agency with requested tax
returns, reports, or other available data within 30 days of the
date of request.

The record clearly shows that the Petitioner is guilty of all of
these infractions of the regulatory requirements, and, signifi
cantly, has offered no reasonable explanation for its laxity.
That "[t]he managing officer and president had been out of [the]
country" (Petition) sounds as a pretext, not unlike the "virus in
my computer" excuse. Exhibits V-1, 21; V-1, 33.

The Petitioner has certainly not adduced preponderant evidence to
sustain its burden of proof that the Agency's action in finding
good cause for the termination of the Petitioner's Program par
ticipation was arbitrary, capricious or contrary to the law or
the regulations. In fact, no evidence of a lack of good cause for
the Agency's action has been adduced. Furthermore, there is no
assertion that the procedures employed by the Agency in notifying
the Petitioner of the termination action were improper. The
Petitioner appears to have been afforded all of the due process
rights to which it was entitled. 7/

On the record before her on December 30, 1993, the AA/MSB&COD
concluded that the Petitioner failed to carry its burden of
proving, by preponderant evidence, that its conduct did not
amount to good cause for the termination of its Program parti
cipation. I cannot disagree with that conclusion. The record
evidences good cause for the termination of the Petitioner's
Program participation. The AA/MSB&COD's determination "was based
on a consideration of the relevant factors;" there was no "clear
error of judgment." Motor Vehicle Manufacturers Association v.
State Farm Mutual Insurance, 463 U.S. 29, 77 L.Ed.2d 443, 103
S.Ct. 2856 (1983). It is apparent that the Associate
Administrator has adequately considered all factors and has
demonstrated a rational connection between the facts found and
the choice made. The procedures employed by the Associate
Administrator in reaching her determination comply with the
applicable statutory requirements and with the regulations.
United States Lines. Inc. v. Federal Maritime Commission, 584
F.2d 519 (D.C. Cir. 1978).

Conclusion

The December 30, 1993 determination of the Associate Adminis
trator, terminating the Section 8(a) Program participation of the
Petitioner, A Answer, Inc., was NOT ARBITRARY, CAPRICIOUS OR
CONTRARY TO LAW.

This is the final decision of the Small Business Administration,
and it is binding upon all parties, including those within the
employ of the Agency. 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 may be
referred to herein as the "Associate Administrator" or the
"AA/MSB&COD."

2/ "Termination" is defined in Section 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 Section
124. 209. "

3/ The Director of the Division of Program Certification and
Eligibility, Minority Small Business and Capital Ownership
Development, may be referred to herein as the D/DPCE.

4/ The record is unclear as to why the D/DPCE chose to ignore the
Petitioner's July 30, 1993 submission, but, with her August 5,
1993 memorandum, forwarding the documents filed by the Petitioner
on July 30, 1993 (June 30, 1993 Financial Statements; December
31, 1992 Financial Statements; and the "Representatives-Used"
form), the Assistant District Director in San Francisco advised
the Central Office's Division of Program Development that there
was concern about these submissions being made by the son of the
Petitioner's owner because "he has no ownership interest in the
firm [and] this firm has never requested a change in ownership to
add [the son] as Vice President." Exhibit V-1, 20.

5/ The Agency's response to the Petition was due to be filed on
March 4, 1994, 45 days after the docketing of the Petition, but,
on February 28, 1994, Counsel for the Agency moved for an
extension of time and was allowed to file the response on or
before March 30, 1994.

6/ Section 124.210(h)(1) of the regulations provides that "the
determination by the AA/MSB&COD...related to [termination
pursuant to Section 124.209]...shall be sustained unless such
determination is found [by the Administrative Law Judge] to be
arbitrary, capricious, or contrary to law." To the extent that
the decision in the Matter of Carolina Welding. Inc., No. 401
(May 22, 1992) is a variance with this holding, it is erroneous.
Compare the decisions in proceedings involving the suspension of
8(a) Program Participants, e.g., the Matter of Harvey Oil
Company. Inc., No. 387 (December 17, 1991); and the Matter of KRW
Inc., No. 379 (August 29, 1991).

7/ Although the D/DPCE relied on the erroneous assumption that
the information submitted by the Petitioner on July 30, 1993 and
September 3, 1993 had not been received by the Agency, his
recommendation to the AA/MSB&COD regarding termination was based
on good cause, i.e., the fact that the submissions were untimely.
Furthermore, I can find no fault with the D/DPCE's having
insisted that the Petitioner did not respond to the September 2,
1993 letter even though it was, apparently, not "received." The
fact that it was "unclaimed" by the Petitioner indicates that it
was, in fact, "delivered" in the sense that the Postal Service
notified the Petitioner of the fact that it was awaiting a pick
up at the Post Office. Presumably, the Petitioner deliberately
avoided delivery.