Ridge Instrument Co., Inc., No. 4207 (August 29, 1996)
Docket No. SIZ-96-4-16-29


                    UNITED STATES OF AMERICA

                  SMALL BUSINESS ADMINISTRATION

                 OFFICE OF HEARINGS AND APPEALS

                        WASHINGTON, D.C.


_______________________________
                               )
SIZE APPEAL OF:                )
                               )
Ridge Instrument Co., Inc.     )
                               )
     Appellant                 )  
                               )  Docket No. SIZ-96-4-16-29
Solicitation No.               )
DAAE20-95-B-3290               )
DAAE20-95-B-0429               )
Department of the Army         )
Rock Island Arsenal            )
Rock Island, Illinois          )
_______________________________)

                                                                 
                             DIGEST

Three persons, two of whom are brothers, who have a number of
common investments with equal shares in every business in which
they invest, and act in concert in all their dealings, have an
identity of interest, and may, for the purposes of determining
affiliation, be treated as one person.

Firms which have a common majority third-party owner are
affiliated through common ownership, even though they are in
different lines of business and have no business dealings with
each other.

                            DECISION

                         August 29, 1996

HOLLEMAN, Administrative Judge:





                          Jurisdiction

     This appeal is decided under the Small Business Act of 1958,
15 U.S.C. Sections 631 et seq., and 13 C.F.R. Part 121.[1]

                             Issues

     Whether individuals, two of whom are brothers, who have a
number of common investments with equal shares in every business
in which they invest, and act in concert in all their dealings,
have an identity of interest, and may, for the purposes of
determining affiliation, be treated as one person.

     Whether firms which have a common majority third-party owner
are affiliated through common ownership, even though they are in
different lines of business and have no business dealings with
each other.
     
                          I. BACKGROUND

     On November 2, 1995, the Department of the Army, Army
Armament Command, Rock Island Arsenal, Rock Island, Illinois
(Army Armament Command) issued the subject solicitation, No.
DAAE20-95-B-3290, for hydraulic manifolds.  The Contracting
Officer (CO) set the procurement aside totally for small business
and assigned it Standard Industrial Classification (SIC) code
3494, Valves and Pipe Fittings, Not Elsewhere Classified, with a
corresponding size standard of 500 employees.

     On December 1, 1995, the Army Armament Command issued the
subject solicitation, No. DAAE20-95-B-0429, for variable
resistors.  The CO set the procurement aside totally for small
business and assigned it SIC code 3676, Electronic Resistors,
with a corresponding size standard of 500 employees.  Both
solicitations were issued as sealed bid procurements.

     Ridge Instrument Company, Inc. (Appellant), 7220 Governors
Drive West, Huntsville, Alabama, submitted the apparent low bid
for each procurement.  On March 6, 1996, the CO formally
determined Appellant was not responsible, and referred both
procurements to the Small Business Administration (SBA) Area III
Office of Government Contracting in Atlanta, Georgia (Area
Office), for a possible Certificate of Competency (COC) action.  

     On March 22, 1996, Appellant applied for a COC in both
cases, and submitted its application, including an SBA Form 355,
to the Area Office.[2]  After reviewing the application, the Area
Director decided to conduct a formal size investigation of
Appellant.   

     On March 27, 1996, the Area Office issued its size
determination.  The Area Office found Appellant's stock is owned
by three persons, Sam Yeager and Tim Yeager, who are brothers,
and C.F. Daniel (the Stockholders), each with a one-third
interest.  Appellant has 18 employees.

     The Area Office further found the Stockholders have
substantial interests in a number of other firms.  The
Stockholders own 24% each, or 72% total, of Carolina Quality,
Inc. (Carolina), 208 North Garnett St., Henderson, North
Carolina, which owns and operates 11 Burger King restaurants in
North Carolina and Virginia, and has 250 employees.  The
Stockholders own 19% each, or 57% total, of NorthStar Group
(NorthStar), 164 Wind Chime Court, Raleigh, North Carolina, which
owns and operates five nursing homes in North Carolina, and has
650 employees.  The Stockholders own 14.33% each, or 43% total,
of MedStar Pharmacy, Inc., which has 12 employees.

     Further, each Stockholder owns one-third of DASA, a
partnership formed to hold the real estate for Carolina's Burger
Kings, which has no employees; 10% of Southeastern Hospital
Corporation, which owns two hospitals, one in Kentucky and one in
Texas; and 18.33% of Medical Properties, L.L.C., a real estate
company.  The record does not contain the number of employees for
either Southeastern Hospital or Medical Properties.

     The Stockholders are Appellant's Officers and Directors. 
Mr. Daniel is Secretary-Treasurer of Carolina; Treasurer of
NorthStar; and a Director of both firms.  Both Yeager brothers
also are Directors of Carolina.

     The Area Office concluded the Stockholders have common
investments in Appellant, Carolina, and Northstar, which
constitute more than 50% of the total stock ownership of each
company.  Therefore, the Stockholders have the power to control
the three companies.  The Area Office found that, because
affiliation exists between the three firms -- which together have
over 900 employees -- Appellant is other than small.

     Appellant received the size determination on March 29, 1996,
and filed the instant appeal on April 11, 1996.  First, Appellant
asserts the alleged affiliates are in fact unrelated firms, and
it does not perform services for or receive services from
NorthStar or Carolina.  Further, Appellant asserts it shares no
facilities, equipment or personnel with either firm; no financial
obligations or guarantees; no subcontracting relationships; and
no addresses, facilities, obligations, accounting, banking, or
legal services.

     Second, Appellant asserts it is the type of small business
concern which epitomizes the public policy goals and purposes of
SBA.  Therefore, it would be an injustice to find the firms
affiliated, and the regulations require a finding they are not.

     Third, Appellant asserts there is a clear line of fracture
between it and the other firms because the Stockholders have
demonstrated a manifest intent to dissociate themselves, and
their business and economic interests, from Appellant.  Appellant
and the other firms have no financial or contractual
relationships.  The firms are in different states and different
types of business than Appellant.  Appellant and the other firms
have no pattern of acting in concert.

     Fourth, Appellant asserts it seeks a "bright line" test, not
a balancing test where, as here, the absence of a connection
between the business and economic interests of a challenged firm
and the alleged affiliates justifies a finding of a clear line of
fracture.

                         II. DISCUSSION

     Since the instant appeal was filed within 15 days of the
service of the size determination, the appeal is timely. 
13 C.F.R. Section 134.304(a)(1).

     Appellant by itself is small.  However, a size determination
must include the applicant concern and all its affiliates. 
13 C.F.R. Section 121.401(a)(1).  Thus, the real issue in this
appeal is whether Appellant is affiliated with NorthStar and
Carolina, the two firms in which the Stockholders hold a majority
interest and which, together with Appellant, clearly exceed the
size standard.  
     Every business concern is controlled by one or more parties. 
Concerns are affiliated when a third party controls or has the
power to control both firms.  13 C.F.R. Section
121.401(a)(2)(ii).  
This control can arise from stock ownership, or occupancy of
officer and director positions.  13 C.F.R. Section 121.401(c)(1)-
(2).

     Concerns and individuals are affiliated where they have an
identity of interest.  13 C.F.R. Section 121.401(a)(2)(iii).  An
identity of interest, amounting to affiliation, may arise in a
variety of situations.  It may be found among those who have
common investments in more than one concern.  Agrigold Juice
Products, No. 4136 (1996); 13 C.F.R. Section 121.401(d).  In such
situations, the common business interests cause the parties to
act in unison for their common benefit, and they may be treated
as one party.  Agrigold, No. 4136.  An identity of interest may
be found among family members with common investments.  Id.

     Appellant bears the burden of rebutting the presumption of
identity of interest both among persons with common investments
in multiple firms, and among family members.  Appellant also
bears the burden of rebutting the presumption that these persons
should be treated as one party.  Id.

     In this case, the Presiding Judge finds that there is an
identity of interest among the Shareholders.  They have a number
of common investments.  Further, two of them are brothers, and
there is absolutely no evidence of any estrangement or division
between them.  To the contrary, the three Stockholders appear to
act in concert in all their business dealings, and own equal
shares in every business in which they invest.  Their individual
firms may be separate, but there is no clear line of fracture
between the Stockholders, or between them and any of the firms in
which they have an interest.  While they have demonstrated an
intent to keep their individual businesses separate, they have
not dissociated themselves from each other or from the firms they
jointly own and control.

     As there is an identity of interest among the Shareholders,
they may be treated as one person for the purpose of determining
affiliation.  The Shareholders together have a majority interest
in Appellant, NorthStar, and Carolina, and thus one party has the
power to control all three firms.

     Appellant's attempts to rebut a finding of affiliation are
unpersuasive.  Appellant relies on Size Appeal of Golden Bear
Arborists, No. 1899 (1984), and the cases following it for its
assertion that a finding of affiliation may be rebutted if the
finding would reach a result which was unjust or inequitable
under the circumstances.  However, the Golden Bear line of cases
does not apply a vague unfairness test to determine affiliation,
as urged by Appellant.  Rather, this Office's precedents require
the Presiding Judge to carefully consider all the factors in each
case to determine whether a clear line of fracture existed
between the parties, and thus whether a finding of affiliation is
warranted.  Appellant has confused these cases, involving
affiliation between firms whose owners are related either by
family or prior business dealings, with the instant appeal
involving separate firms with common owners.[3] 

     The fact the firms have no business connections between them
other than their common ownership (i.e., they are in different
businesses) does not affect the application of the common
management rule.  Nor do the policy considerations Appellant
asserts.  Further, while the firms are in different lines of
business, this does not affect the fact they have common
ownership and management.  Appellant cites no authority to show
any of these factors may modify the common ownership and
management rule.

     In the instant case, the Stockholders are controlling owners
of each of the firms considered.  Under these circumstances, the
Presiding Judge finds that Appellant has failed to meet its
burden of rebutting the presumption that an identity of interest
exists between the Stockholders, so that they may be treated as
one entity.  See Agrigold, No. 4136; Size Appeal of Black's
Guide, Inc., No. 4046 (1995); Size Appeal of Bunkoff General
Contractors, Inc., No. 3804 (1993).  

     As to the other firms in which the Stockholders have
interests, they either have no employees, and thus would not
affect the outcome of this size appeal; or the Stockholders do 

not have a majority interest, and therefore they cannot be found
affiliated under the common ownership rule.

                         II. CONCLUSION

     Accordingly, the Presiding Judge finds Appellant is
affiliated with NorthStar and Carolina due to common ownership,
and its number of employees, together with its affiliates,
exceeds the applicable size standard.  Appellant is therefore
other than small.

     For the above reasons, the Area Office III determination is
AFFIRMED, and the appeal is DENIED.

     This is the final decision of the Small Business
Administration.  See 13 C.F.R. Section 121.316(b)(1996).


                                   ___________________________
                                   Christopher Holleman
                                   Administrative Judge
____________________
 [1] The Small Business Administration has revised its
substantive size regulations and its procedural regulations,
including those for this Office.  See 13 C.F.R. Parts 121 and
134, effective March 1, 1996.  Since the instant solicitation was
issued in 1995, the substantive size regulations then in effect
apply here.  However, because the appeal was filed after the
effective date of the new procedural regulations, they apply.  

 [2] In order to be eligible for a COC, an applicant must qualify
as a small business under the size standard incorporated in the
subject solicitation.  13 C.F.R. Section 125.5(a)(1)(1995).

 [3]  Appellant relies upon, among others, Size Appeal of Maria
Elena Torano & Associates, No. 4010 (1995) (inapposite because,
unlike Appellant and its affiliates, the two firms had no common
ownership or common management); Size Appeal of Aumann, Inc., No.
3743 (1993) (inapposite because the firms had no common
ownership, and a clear line of fracture was established between
the owners of the two firms, even though they were related); Size
Appeal of Vitin Garment Manufacturing, Inc., No. 3603 (1992)
(inapposite because the firms in that case were found
affiliated).