BENMOL CORPORATION, No. MSB-516 (July 19, 1995)
Docket No. MSBE-94-12-23-50

                       UNITED STATES OF AMERICA

                    SMALL BUSINESS ADMINISTRATION

                   OFFICE OF HEARINGS AND APPEALS

                        WASHINGTON,D.C. 20416

IN THE MATTER OF:                      )
                                       )     Docket No. MSBE-94-12-23-50
BENMOL CORPORATION                     )

                             APPEARANCES

For the Appellant:                    For the Agency:

Pamela J. Mazza, Esq.                   John T. Spotila
888 17th Street, N.W.                   General Counsel
Washington, D.C. 20006                  Katherine C. Power
                                        Agency Representative
                                        409 3rd Street S.W.
                                        Washington, D.C. 20416

                               DIGEST

Findings by the Associate Administrator that the applicant failed to
provide clear and convincing evidence of social and economic
discrimination as those terms are used and applied in the Small
Business Administration's Section 8(a) set aside program is not
arbitrary and capricious.

                           Final Decision

                            July 19, 1995

Nahum Litt, Administrative Law Judge

JURISDICTION

Authority for these proceedings is found in Section 409 of the
Business Opportunity Development Reform Act of 1988, Public Law
100-656 [Section 8(a) (9) of the Small Business Act of 1958, as
amended, 15 U.S.C. 637(a)(9)], hereinafter referred to as "the Act,"
and in the regulations codified at 13 CFR Parts 124 and 134, which
are referred to hereinafter by section numbers only.

ISSUES

(1) Did the Acting Associate Administrator for Minority Enterprises
Development (Associate Administrator) act arbitrarily and
capriciously in finding that a company owned by a person claiming
social and economic disadvantage was not socially and economically
disadvantaged as that term is used in the statute and regulations?

(2) Did the Associate Administrator improperly apply the standard of
proof in determining that the applicant had not provided clear and
convincing evidence of social and economic discrimination?

STATEMENT OF THE CASE

By application filed January 27, 1994, Benmol Corporation applied for
inclusion into the SBA's Section 8(a) program. The Associate
Administrator denied this application by letter dated May 18, 1994,
and applicant filed a Petition for Reconsideration on June 30, 1994.
By letter dated November 9, 1994, the Associate Administrator denied
this Petition. This appeal was filed on December 23, 1994, and the
Agency filed its response on February 6, 1995.

POSITION OF THE PARTIES

On appeal, the petitioner argues first that the standard of clear and
convincing evidence was misapplied in this case. Its position is that
the Agency has required of this applicant a higher burden of proof
than set out in its regulations, has without justification refused to
give its verified evidence, which petitioner claims is unrefuted in
any way, full value, and has ignored its own directions as to how the
regulations are to be viewed in determining whether an individual
applicant is socially and economically disadvantaged. Petitioner,
specifically attacks the Associate Administrator's failure to give
its verified evidence full credence, claiming that the Associate
Administrator has no basis upon which to find that such evidence is
not clear and convincing.

The Petitioner also argues that it is not required to prove social
and economic disadvantage as to each element in the regulation, only
that it must meet the definition as to some or any of the elements.
For the last proposition it cites to the Agency statement in the Code
of Federal Regulations in August, 1994, where the Agency commented
that if the proposed rule were put in place an applicant would not
have to meet each of the five criterion established for showing
social and economic disadvantage.2

The Agency argues first that the proposed rule relied upon by
applicant was not in effect at the time this application was
processed, has not been adopted, and is not applicable. The Agency's
position on the submitted evidence is that the affidavits were all
filed by relatives or close business associates, and, therefore, are
not objective. Therefore, even if there is no other evidence, given
the nature of what has been submitted, it is entirely proper for the
agency to find that the submitted evidence is not clear and
convincing evidence of discrimination. The Agency views the
applicant's success of obtaining a college degree, finding
employment, and starting a business which has access to some
financial markets as more than adequate evidence that the owner, Mr.
Molayem, is neither socially or economically disadvantaged.

The Agency further argues that there are many reasons why contract
bidding is not successful and that the affidavits submitted to show a
loss of two contracts does not amount to convincing evidence that the
contracts were not awarded because of discrimination against him as a
person of Iranian descent. The Agency also denies that it used any
improper comparisons in evaluating Applicant's standing in respect to
similar firms, that the error in percentages of bids is irrelevant,
and that the use of a different year for comparison purposes would
not yield a different result.

FACTS

Mr. Benjamin Molayem is President of Benmol Corporation and owns 100%
of the stock. He emigrated to the United States from Iran in 1967,
and identifies himself as an Iranian American. He attended one year
of high school in Adelphi, Maryland, and states that the students
derided him because of his heritage and poor English. This harassment
caused sever headaches. He graduated from the University of Maryland
in 1972 with a degree in chemical engineering. He avers that several
professors actively discriminated against him because of his Iranian
heritage. After graduation he attended graduate school at the
University of Maryland on a part time basis and obtained his M.S.
degree in engineering in 1976. Maryland was not his first choice for
graduate school but, because of low grades, which he attributes to
discrimination by his professors at the undergraduate level, he could
not attend universities which he considers superior. He was not
interviewed for on-campus recruiting and states that other students
with poorer grades were both interviewed and hired from on-campus
interviews. He states that this was because of his Iranian heritage.

Between 1972 and 1976 he worked as a Supervisory chemical Engineer
for a company, but did not supervise any personnel which he found
embarrassing. In 1976 he obtained a position with a different company
but left in 1978 because he believed they were discriminating against
him because of his Iranian descent. He then became a Project Engineer
with another company because of his expertise in boilers. He was
promised advancement opportunities but believed they did not live up
to their promises because of his Iranian descent. After this last
experience, he gave up engineering and drove a taxicab until 1979
when he started his own business. He stated that the taxicab
dispatcher discriminated against him because he was of Iranian
descent. Benmol was run as a start-up business from his house and he
continued to drive a taxicab.

Numerous contract proposals to different agencies were not accepted
between 1980 and 1989. He states that these proposals were lower
priced and technically superior to those bids which were accepted and
believes that the only reason his bids were not accepted was that he
is of Iranian descent. An affidavit submitted by his Certified Public
Accountant, who has been his CPA since 1982, and who has helped him
in his bid proposals, gives several specific instances where bids
were rejected despite being significantly lower than the bid
accepted. He attributes these rejections as being a result of bias
and prejudice. Similarly, he attributes the refusal of several banks
to extend lines of credit as biased and discriminatory because of his
Iranian descent. Another affidavit by a former employee who has not
worked for Benmol since 1982 sets out in detail how a prime
contractor sought to remove him as a subcontractor, which removal
action affiant states was due to his Iranian descent.

DISCUSSION

The applicable regulations require, as the Agency asserts, that all
five elements be shown, with clear and convincing evidence, that the
applicant is socially and economically disadvantaged. At best, the
cited regulation changes which are in the form of a proposed rule
could be used as an equitable argument that the Agency may choose to
be more accommodating, but they are not requirements. The Agency is
not bound by proposed rules or by language explaining that the Agency
is contemplating imposition of a more relaxed standard.

Nor is there any proof here that the Associate Administrator imposed
a higher standard than the clear and convincing evidence standard
normally applied in reviewing submitted evidence. While it is true
that two of the affidavits were filed by persons who had either a
remote or only a professional relationship with the applicant, the
Agency's position that the affidavits of Mr. Molayem and his wife do
not rise to the credibility level that the Associate Administrator
believes demonstrates social and economic disadvantage is not
applying a more stringent test. The Associate Administrator can
certainly weigh evidence based upon the nature of the affiant and the
relationship to the Applicant. While the affidavits of the
disinterested affiants may give rise to a question of the weight to
be afforded verified statements, the affidavits of Mr. Molayem and
his wife do not.

In the denial letter the Associate Administrator refused to credit
three of the proffered disabilities as causing social and economic
discrimination which would form a basis for inclusion in the 8(a)
program. The Associate Administrator relied on the failure of Mr.
Molayem to show either a lack of educational opportunity or
subsequent ability to obtain an education, a lack of employment
opportunity or ability to obtain employment, or an inability to
obtain financing or contracts. The decision is not without a rational
basis. Despite his claimed hazing in school, Mr. Molayem attended
college, obtained a masters degree, was employed by several firms and
opened his own business while supporting himself in part by driving a
taxicab. This record of accomplishments, even if there was
discrimination in obtaining some contracts or lines of credit at some
banks, is more than a sufficient basis for the Associate
Administrator to find that clear and convincing evidence of social
and economic discrimination warranting a grant of admission into the
program had not been established.

The Associate Administrator has made it clear in a number of
decisions that the Agency does not favor admission into the program
by partially successful businesses which are not designated as
minorities in the enabling statute. Through its case law, the Agency
has indicated that the standards of proof which will be applied by
the Associate Administrator will require an applicant to meet each of
the five requirements and that an application of an educated
applicant who obtained employment in the past, and is partially
successful in his or her current small business, will not be favored.
This is not only perfectly permissible, but is clearly the Agency's
prerogative in determining whether a particular program, designed
primarily for specifically designated minorities, will be made more
open to others.

A small business person can qualify under the alternative standards
of proof for social and economic disadvantage applied by the SBA
under Sec. 124.105 (c) . The regulations permit those who are not
designated minorities to apply for inclusion in the program. The
Agency evaluates the evidence submitted on a stringent standard,
clear and convincing, evidence. However, the marginal success of both
the individual and the business makes it unlikely that inclusion in
the program will occur. In sum, the Agency interprets the regulations
in such a way that apparently few, if any, such non-designated
applicants are able to supply clear and convincing evidence of a
qualifying social or economic disadvantage.3 This is well within the
range of discretion afforded the Agency by the statute and does not
represent an arbitrary and capricious act on the part of the Agency.

                             CONCLUSION
                                  
The determination of the Acting Associate Administrator on
Reconsideration, dated, November 9, 1994, finding the Petitioner,
Benmol Corporation, to be ineligible for participation in the
Agency's Section 8(a) program is NOT ARBITRARY, CAPRICIOUS, OR
CONTRARY TO LAW.

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 CFR 124.210(i).

                                             Nahum Litt
                                             Administrative Law Judge

_______________________

1    Sitting by designation pursuant to the Amended Notice and Order
     issued on June 20, 1995. Formerly chief Administrative Law
     Judge, U.S. Department of Labor.

2    Vol. 59 Fed. Reg. 44652 (1994) (to be codified at 13 CFR pts 121
     and 124)(proposed August 30, 1994).

3    Less than 5% of all 8 (a) program participants appear to be held
     by non-designated minorities. A breakdown of this 5% discloses
     that they include both gender related and the disabled and
     handicapped.