Circuit Center, No. MSB-453 (February 16, 1994) Docket No. MSBE-93-10-19-12 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. IN THE MATTER OF: ) ) Docket No. MSBE-93-10-19-12 Circuit Center ) APPEARANCES For the Petitioner: For the Agency: Craig D. Peckarsky, Owner John T. Spotila, Esq. Circuit Center General Counsel 3514 West Villard Avenue Donald A. Morrison, Esq. P.O. Box 09485 Agency Representative Milwaukee, WI 53209 Small Business Administration 409 3rd 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 fol lowed in evaluating all applications for participation in the Agency's 8(a) Program that were pending as of August 21, 1989 or were filed thereafter. 13 CFR 124.1(a)(2)(i). An applicant for participation in the Agency's 8(a) Program has the burden of proving all elements of its eligibility. 13 CFR 124.210(h)(3)(ii); 13 CFR 134.31(a). In order to be eligible to participate in the Agency's 8(a) Program, an applicant concern must be one which is at least 51 percent unconditionally owned by an individual who is determined by SBA to be socially and economically disadvantaged, and the concern must be controlled by the socially and economically disadvantaged individual. 13 CFR 124.103. An applicant firm whose socially-disadvantaged status is based upon the claim of social disadvantage on the part of an individ ual, who is not a member of a group that has been designated by SBA as "presumed to be socially disadvantaged," must prove that individual's claim of social disadvantage by clear and convincing evidence. 13 CFR 124.105(c). Clear and convincing evidence is not unequivocal or of such quality as to dispel all reasonable doubt; rather, it is evidence that fairly compels the factfinder's belief, leaves little doubt about the truth of the matter asserted, and produces an abiding conviction that the truth of the matter is highly probable, not merely more probable than not. In a proceeding brought under Section 124.210 of the regulations, an individual who claims to be socially disadvantaged because of his or her gender, physical handicap, long-term residence in an environment isolated from the American mainstream, or other similar cause not common to small business persons who are not socially disadvantaged, need not prove that his or her disadvan tage results from a cause or Causes common to all members of that gender or to all those with the same or similar handicap or residential background. 13 CFR 124.105(c). A determination by the Associate Administrator denying the socially-disadvantaged claim of the individual upon whom a firm's 8(a) eligibility is based is not arbitrary, capricious, or con trary to law if there is a reasonable basis for that conclusional finding in the record that was before the Associate Administrator at the time she made the determination. FINAL DECISION February 16, 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. Issues Is there an evidential rationale for the conclusion of the Associate Administrator 1/ in the record that was before her at the time she made her determination, and is it clear from the record and from the determination itself that the AA/MSB&COD considered all of the relevant facts in making her determination? Facts Craig D. Peckarsky filed an application with the Agency's Mil- waukee District Office for the admission of his firm, Circuit Center, a sole proprietorship, to the Agency's Section 8(a) Program in early February of 1992. Peckarsky claimed social disadvantage because of "cultural bias" on the basis that he had been adopted and was the "second generation of single parenthood' in his family. He did not claim to be a member of any of the groups that have been designated by the Agency as being "presumed to be socially disadvantaged." See Section 124.105(b) of the regulations. The application was returned as incomplete on two occasions, and further information was submitted as requested. On April 30, 1992, the Chicago Regional Division of Program Certification and Eligibility completed its processing of the application, and it was forwarded to the Central Office in Washington. In his application, Peckarsky argued the following, in pertinent part: My education in higher studies was terminated due to economic realities. My previous employer had terminated the position I held for three [sic] years and the needs of my son clearly have priority over a "traditional 9-5" position. Thus requiring me to be self-employed [sic] and placing my personal desires for advancement beyond reach [sic]. In answer to the question, "Have you experienced low income status because of apparent discriminatory practice?" Peckarsky replied: Yes. Circuit Center has progressed slower [sic] than its potential. Many major government contracts have been elusive for Circuit Center awards. The competitors in these contracts have consistently better success due to their obvious advantages in technical research and development, financial strength, management contacts within the industry and even alliances with manufacturers. Peckarsky answered "Yes" to a question on the SBA Form 1010A concerning whether, because of racial and/or ethnic prejudice and/or cultural bias, his ability to compete in the free enter prise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged, and he further explained: "Without proper capital available, my resources to capitalize the power of literature, inventory, advertising, etc., to capture potential sales is severely limited [sic]." The record indicates that Peckarsky submitted no evidence to support his assertions. The Associate Administrator initially denied the application on March 2, 1993 because she determined that Peckarsky had not proven his claim that he was socially disadvantaged as the result of his "adoption or single parenthood." On March 15, 1993, Peckarsky requested that his application be reconsidered. He submitted no evidence with his reconsideration request, but argued further, in pertinent part, as follows: Economic inequities manifest themselves almost daily. Since the inception of Circuit Center we have been under capitalized [sic] and acceptable credit lines unobtainable, even with a good "credit rating." [sic] From a competitor's perspective our competition... have major league capital assets at their disposal. As stated previously, a lack of higher and continued education by reason of parenthood (i.e., time/money) restraints reveals consistent inequitable disappointment over lost sales. This is due to a deficiency in business management knowledge and manufacturers' advanced authorizations. Prior inadequacies in employment opportunities (discrimination) would have prevented child nurturing. Being what has prompted myself into Circuit Center and our current predicament(s) [sic]. And furthermore, our business history dictates growth although reality dictates an impending plateau of stagnancy. * * * * * * * Does it really matter what you call it? Discrimination, for any reason, mandates negative impact upon our business' advancing growth and hiring. Lack of credit and/or capital, inabilities to secure more than token government or industry contracts and unsuited to "network" with members in attendance at professional organization gatherings [sic]. It all means the same.... Everyone likes to see the small businessperson [sic] make good in their [sic] endeavors, however, no one [sic] is wiling to assume any portion of the risk. From banks who [sic] only finance companies already having assets to customers who purchase only from financially secure traditional business [sic]. Social and economic disadvantage have clearly made Circuit Center their home at Circuit Center [sic] and are ever present. If questions persist please do not hesitate to contact myself personally [sic].... In a letter dated September 8, 1993, 2/ the Associate Adminis trator denied Peckarsky's application after reconsideration, giving, in pertinent part, the following explanation: You did not provide sufficient information to allow us to conclude that you are socially disadvantaged. This determination is based on our finding that you have not presented clear and convincing evidence that would allow us to conclude that you have been subjected to racial or ethnic prejudice or cultural bias. Your request for reconsideration did not address the issue of your personal chronic suffering of social disadvantage due to adoption and single parenthood. It also did not specifically address denials of opportunity for educational pursuits. It did not specifically This decision was not rendered within 90 days after the Petition was filed because it was necessary that I remand the matter to the AA/MSB&COD on January 18, 1994 for an affirmation that she had considered all of the factors rel ative to the Petitioner's eligibility. The determination after remand was submitted to me on February 4, 1994. address how you personally experienced discriminatory practices in employment or in the award of government contracts. Further, it did not clear [sic] and convincingly indicate that you personally experienced unequal access to credit or were excluded from business or professional organizations because of the adoption. In addition, it did not specifically address how you directly suffered discriminatory practices that influenced the firm's entry and advancement in the business world because of the adoption. Therefore, we cannot conclude that you are socially disadvantaged. As a result of our determination that you are not socially disadvantaged, we are unable to conclude that you are economically disadvantaged. In accordance with the regulation codified at 13 CFR 124.210, Peckarsky filed a timely Petition on October 19, 1993, and this proceeding was commenced. He repeated the assertions set forth in his letter of April 15, 1993, which accompanied his request of the Associate Administrator to reconsider her initial denial of his eligibility and added the following argument: Even professional peer networks have bylaws of authorization or membership requiring advanced training in order to patronize within these organizations [sic]. Clearly a denial of equal (or any) opportunity for educational pursuits and exclusion from professional organizations of choice (ie. Novell CNE, Landa Etc.) [sic]. Government contract awards are few and far between. Those that have been awarded to Circuit Center have been nothing other than token purchase orders. Although these are much appreciated, they are fulfilled upon the intention of getting both feet within the office doors. Ideally leading to further contracts once a respectable track record has been established [sic]. Most awards of substance require advanced technical knowledge in order to service their users appropriately. Prior disappointments regarding inadequacies in employment opportunities (discrimination) would have prevented child nurturing. My previous employer...eliminated my position of Operations Manager and reduced my position to telephone sales. This being what has prompted myself [sic] into Circuit Center and our current predicament(s) [sic]. And furthermore, our business history dictates growth although reality dictates an impending plateau of stagnancy. * * * * * * * Traditional substantial hard evidence or proof of unequal access to opportunity is difficult to secure. However, what is proven is that millions of dollars are loaned, granted and utilized to purchase goods, services and supplies to other business's [sic] on a daily basis. What is known is that Circuit Center is located in a labor surplus industrial corridor target trade area. What is known is that our bank (and AT&T, ITT, First Financial) of over 4 years has no line of credit available for Circuit Center. On December 2, 1993, the Agency's Counsel submitted the admin istrative record upon which the AA/MSB&COD's reconsidered deter mination was based and filed the Agency's Answer to the Petition. Counsel argues that the Petitioner's request for reconsideration merely made brief unsupported claims as to Mr. Peckarsky's claim of social disadvantage. It did not in any way come close to demonstrating Mr. Peckarsky's social disadvantage by clear and convincing evidence as required by the regulations. Discussion The regulation at 13 CFR 124.103 provides, in part: Except for concerns owned by Indian tribes, Alaska Native Corporations or Native Hawaiian Organizations, in order to be eligible to participate in the 8(a) program, an applicant concern must be one which is at least 51 percent unconditionally owned by an individual who is a citizen of the United States...and who is determined by SBA to be socially and economically disadvantaged. At 13 CFR 124.105, the requirements for the establishment of social disadvantage are discussed at length, as follows: (a) 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. The social disadvantage must stem from circumstances beyond their control. * * * * * * * (b) Members of designated groups. (1) In the absence of evidence to the contrary, the following individuals are presumed to be socially disadvantaged: Black Americans; Hispanic Americans; Native Americans (American Indians, Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans...; Subcontinent Asian Americans...; and members of other groups designated from time to time by SBA according to procedures set forth at paragraph (d) of this section. (c) Individuals not members of designated groups. (1) An individual who is not a member of one of the above- named groups must establish his/her individual social disadvantage on the basis of clear and convincing evidence. A clear and convincing case of social disadvantage must include the following elements: (i) The individual's social disadvantage must stem from his or her color, ethnic origin, gender, physical handicap, long-term residence in an environment isolated from the mainstream of American society, or other similar cause not common to small business persons who are not socially disadvantaged. (ii) The individual must demonstrate that he or she has personally suffered social disadvantage, not merely claim membership in a non-designated group which could be considered socially disadvantaged. (iii) The individual's social disadvantage must be rooted in treatment which he or she has experienced in American society, not in other countries. (iv) The individual's social disadvantage must be chronic and substantial, not fleeting or insignificant. (v) 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 of an applicant's case. SBA will particularly consider and place emphasis on the following experiences of the individual, where relevant: (A) Education. SBA shall consider, as evidence of an individual's social disadvantage, denial of equal access to institutions of higher education; exclusion from social and professional association with students and teachers; denial of educational honors; social patterns or pressures which have discouraged the individual from pursuing a professional or business education; and other similar factors. (B) Employment. SBA shall consider, as evidence of an individual's social disadvantage, discrimination in hiring; discrimination in promotions and other aspects of professional advancement; discrimination in pay and fringe benefits; discrimination in other terms and conditions of employment; retaliatory behavior by an employer; social patterns or pressures which have channelled the individual into non-professional or non business fields; and other similar factors. (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. The regulations set forth at 124.106(a)(1)(i) and (ii) provide that, for purposes of the 8(a) Program, economically disadvan taged individuals are socially disadvantaged individuals whose ability to compete in the free enterprise system has been im paired due to diminished capital and credit opportunities as compared to others in the same or a similar line of business who are not socially disadvantaged, and such diminished opportunities have precluded or are likely to preclude such individuals from successfully competing in the open market. Thus, in order to be found to be economically disadvantaged, it is necessary to first be determined by the Agency to be socially disadvantaged. In order for the Petitioner to prevail in this review proceeding, it is necessary that Peckarsky's social and economic disadvan tage, as defined in the regulations quoted above, be proven in the record that was before the AA/MSB&COD by clear and convincing evidence. See Section 124.105(c)(1); see also Fagan v. Small Business Administration, 783 F.Supp. 1455 (D.D.C. 1992); Central States Construction. Inc. v. Small Business Administration, 770 F.Supp. 1447 (D.Kan. 1991). The clear and convincing standard of evidence is discussed in United States v. Mastrangelo, 561 F.Supp. 1114, 1120 (E.D.N.Y. 1983) as follows: To meet the clear and convincing standard it is not required that the evidence be unequivocal or of such a quality so as to dispel all reasonable doubt. Addington v. Texas, 441 U.S. at 423, 99 S.Ct. at 1807. The clear and convincing standard, however, does require from the fact-finder a distinctly higher degree of certainty than does the preponderance standard. Id. at 432-33, 99 S.Ct. at 1812. It has been said that: [T]he term "clear and convincing" evidence means that the witness to a fact must be found to be credible, and that the facts to which they have testified are distinctly remembered and the details thereof narrated exactly and in due order, so as to enable the trier of the facts to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue. Whether evidence is clear and convincing requires weighing, comparing, testing, and judging its worth when considered in connection with all the facts and circumstances in evidence. 30 Am.Jur.2d Evidence 1167 (1964); Hobson v. Eaton, 399 F.2d 781, 784 n.2 (6th Cir. 1968), cert. denied, 394 U.S. 928, 89 S.Ct. 1189, 22 L.Ed.2d 459 (1969). In Kaszuk v. Bakery and Confectionery Union. etc. et al., 638 F.Supp. 365, 374 (N.D. Illinois, E.D. 1984) the Court declared that: "[c]lear and convincing" does not mean evidence which unequivocally proves a point, or dispels all reasonable doubt. [Citing Mastrangelo.] To the extent that the phrase is susceptible of precise definition, we believe it is best described as evidence which produces in the mind of the trier of fact "an abiding conviction that the truth of [the] factual contentions are [sic] 'highly probable."' Thus, if I find that the AA/MSB&COD had reason to conclude that Peckarsky's argument concerning his claimed social and economic disadvantage did not produce an abiding conviction that the truth of the assertions was highly probable, I must affirm the determi nation and deny the relief sought by the Petitioner. Inasmuch as the record before me clearly indicates that Peckarsky did not adduce any evidence to support his claim, I cannot but find that the final determination of the Associate Administrator that the Petitioner "did not [adduce] sufficient...evidence...that [Craig D. Peckarsky], the individual upon whom eligibility is based, [is] socially and economically disadvantaged" is not arbitrary or capricious action or an action that is contrary to the law or regulations. The argument put forth by the Petitioner addresses, to some extent, the fact that social disadvantage, generally, is endured by those who maintain single-parent households, but it does not address with any particularity the question of Peckarsky's own personal disadvantage. The requirement of the regulation at Section 124.105(c)(ii) is unmistakable: The individual must demonstrate that he or she has personally suffered social disadvantage, not merely claim membership in a non-designated group which could be considered socially disadvantaged. Furthermore, while the many unhappy circumstances described by Peckarsky in his application and in the request for reconsider ation relate to him as an individual, and specifically to him as the individual whose eligibility is in question, they either do not prove that he is disadvantaged because of his status as an adopted individual or as a single parent or do not amount to evidence of "prejudice or bias" as is required by definition of social disadvantage set out in the regulation at Section 124.105(a). Clearly, the Petitioner has not proved that either his having been adopted, or his being a single parent, is the cause of the firm's having to operate at a competitive disadvan tage or of the other "economic inequities" which it suffers "almost daily." On this record, the AA/MSB&COD concluded that the Petitioner failed to carry its burden of proving, by clear and convincing evidence, that Peckarsky, the individual upon whom eligibility rests, is socially and economically disadvantaged. I cannot dis agree. Her determination was clearly based on a consideration of all of the relevant factors regarding the Petitioner's eligibil ity, and there appears to be no error of judgment. Motor Vehicle Manufacturers Association v. State Farm Insurance Company, 463 U.S. 29, 77 L.Ed.2d 443, 103 S.Ct. 2856 (1983). It is apparent that the Associate Administrator has adequately considered the record compiled as the result of the Petitioner's submissions and has demonstrated a rational connection between the facts found and the choice made. The procedures she employed 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 September 8, 1993 determination of the AA/MSB&COD, finding the Petitioner, Craig Peckarsky, doing business as Circuit Center, to be ineligible for participation in the Agency's 8(a) Program, is 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) of the regulations. __________________________ 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/ See the regulation codified at 13 CFR 124.210(j).