J. Nowak Construction Co. Inc., No. MSB-524 (September 7, 1995) Docket No. MSBE-94-12-28-51 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. _______________________________ ) IN THE MATTER OF: ) ) Docket No. MSBE-94-12-28-51 J. Nowak Construction ) Co. Inc. ) _______________________________) APPEARANCES For the Appellant: For the Agency: Sylvia Fuentes Nowak John T. Spotila, Esq. President General Counsel J. Nowak Construction Co. Inc. Denise Benjamin, Esq. P.O. Box 1003 Agency Representative Northbrook, IL 60065 409 3rd Street S.W. Washington, DC 20416 DIGEST Findings by the Associate Administrator that the Applicant failed to provide clear and convincing evidence of managerial and technical skills to operate the business, as those terms are used and applied in the Small Business Administration's section 8(a) program, are not arbitrary and capricious. FINAL DECISION September 7, 1995 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. Section 637 (a)(9)], hereinafter referred to as "the Act," and at 13 C.F.R. Parts 124 and 134, which are referred to hereinafter by section numbers only. ISSUE Did the Associate Administrator improperly apply the standard of proof in determining that the Applicant had not provided clear and convincing evidence of managerial and technical experience? STATEMENT OF THE CASE By application filed November 29, 1993, J. Nowak Construction Co. Inc., an Illinois corporation, filed an application for admission to the Small Business Administration's section 8(a) program for small minority owned businesses. The application was predicated upon the representation that Sylvia Fuentes Nowak was socially and economically disadvantaged as the owner and operator of the corporation, which specialized in the replacement of windows. The Associate Administrator for Minority Enterprise Development, denied the application by letter dated June 16, 1994, on a number of grounds, including a lack of managerial experience and competency to operate the business and because her husband was the highest compensated person in the business and had the power to control the applicant concern. A Petition for Reconsideration, filed on July 27, 1994, was denied on December 14, 1994, solely on the basis of a lack of managerial and technical experience of Mrs. Nowak. This appeal was filed on December 28, 1994. The Agency filed its Answer in response on February 13, 1995, and a series of motions to strike; and responses thereto have been filed by the parties. The proceeding is ripe for disposition on the merits. POSITION OF THE PARTIES Petitioner Petitioner takes the position that the Agency is discriminating against her because her non-disadvantaged husband had previously managed the company and because of that fact the Agency has unfairly refused to believe that she has the requisite experience to manage and control the company. In her motions filed subsequent to the Agency Answer, she strenuously argues that in another case, Matter of Tracie L. Crocker, d/b/a Cherokee Helicopter Service, SBA No. 369 (1991), the Agency accepted the unrefuted representations made by a woman applicant who was admitted into the program while, on almost identical evidence, as she sees it, her application and accomplishments as a business woman are demeaned and ignored. She strenuously argues that she was Vice-President, Treasurer and Secretary of the Applicant for five years prior to assuming the President's position in 1993, and since that time there has been a seven-fold increase in business which she attributes to her skill and management. She also points out that she helped her father in a small construction business when growing up and is completely conversant with the requirements of running a small business. Agency The Agency takes the position that the sole experience she alluded to when given several opportunities to augment her filing were vague references to experience helping her father in the construction business and this does not overcome the facts that her husband managed the company for the preceding five years, she had only been President for a few months before filing her application, and she failed to submit substantiated facts illustrating that she assumed managerial or technical responsibilities of the applicant concern. The Agency distinguishes the facts in the Cherokee case, relied upon by the Applicant, where it admitted a woman into the program. It asserts that the Applicant in this case simply did not submit similar evidence of the same nature and quality to establish that she had the experience to manage this company. In addition, it argues that, even if some of her prior business experience is credited, it does not relate to the business activity of the Applicant. In sum, the Agency cites several cases where a decision of this nature has been upheld as a weighing of evidence reserved for the Agency not the judge, and avers that despite applicant's "outrage" there has been no showing of reversible error here. FACTS The only relevant facts, given the narrow focus of the denial, are those that go to control and managerial experience. Norman Nowak was President of the Applicant from 1987 until June 1993. Presently, he is the highest paid employee, second only to the President. His wife, Sylvia Nowak, a Hispanic-American, assumed the Presidency of the firm in June 1993 and filed an application in November 1993 for admission into the 8(a) program on the basis of her social and economic disadvantage. The company has experienced a significant increase in business during 1993 and 1994. She attributes this increase in business to her management skills. The evidence of Sylvia Nowak's managerial skills, other than her claimed success of managing the Applicant concern, which she claims increased its business, is her participation in her father's construction business. She states this experience as: Finally to elaborate on the development of my technical and managerial skills, much of my expertise has been cultivated through my hands-on experience running a small construction concern. Specifically, I learned take offs from reviewing blueprints with my father and sister, in addition to subcontractors, manufacturers' commercial reps, and, of course, from studying technical manuals that I borrowed from the library. I perfected my estimating skills by the use of commercial software that I tailored to my firm's specific requirements. I developed and heightened my abilities to draft bid proposals by extensive networking and, of course, attending bid openings. Appeal Petition - Attachment #3 DISCUSSION AND CONCLUSIONS Post Brief Motions A Motion to Strike the Agency's Answer was filed by the Applicant, a Reply was filed by the Agency, and a Sur Reply was filed by the Applicant. In a nutshell, Applicant argues vehemently that Mr. Severiano Alonzo, who is the Acting Division Chief for Program Certification and Eligibility in Chicago, made his recommendation prior to and without reference to material which he had requested from the Applicant. Applicant argues this is bad faith since the requested material was provided timely and that it demonstrated her managerial skills. The Agency argues that the time notations fail to support the argument that Mr. Alonzo did not have an adequate opportunity to review the material before making his recommendation, and that, in any event, it is not a legitimate basis for striking the Agency's answer. The Agency then reiterates its arguments on the evidence and the cases cited. [2] The Applicant's argument in the Sur Reply centers on the alleged unfairness of requiring the Applicant to know Hearings and Appeals case law on these issues, the specific and certain similarities which the Applicant ascribes to the Cherokee case, and what the Applicant believes is the lamentable effort of the Agency to turn the application process from one designed to help minorities into an adversarial process. The arguments are well joined. Nothing in any of the Applicant's filings support a finding of bad faith or even a remote basis for striking the Agency's answer. Therefore, the Applicant's motion is denied. The arguments made by both parties, as expanded in these post answer filings, are considered in the discussion below. Review of the record This case bottoms out on whether the Administrative Law Judge can or should substitute his or her judgement for that of the Agency. The answer is no, for it is the Agency that makes the determination and unless there is a clear violation of simple fairness or a specific showing that evidence was overlooked that would be determinative of an ultimate issue, the Agency decision must be sustained. See, Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29, 43 (1983). Perhaps it is lamentable that the Agency views certain applications as more adversarial than others, but there is more than ample reason for the Agency to be suspicious and skeptical where an application is filed by the spouse of a non-socially disadvantaged person who was the prior president of the corporation. Norman Nowak ran the company for five years and has remained with the company after the change in officers. He is the second highest paid person in the business. While it may be somewhat unclear whether the Agency found not only that Sylvia Nowak lacked experience but that her husband was still in control of the Applicant, either or both findings would be sustainable on this record. The Applicant's reliance on the Cherokee case is misplaced. In that case, as the Agency points out, a significant amount of evidence was adduced by the applicant attesting to her managerial skills. After the fact, the Applicant, in the case at bar, argues that some of the people she had dealt with in the past would have supplied additional information if questioned and that it was the Agency's responsibility to contact these individuals. The Agency may be charged with the obligation to obtain specific information when the Agency creates doubt as to a submitted document's authenticity and where certain more reliable information is easily obtainable by the Agency. However, to criticize the Agency for not contacting individuals as references who did not submit affidavits and were not identified by Applicant for the purpose now suggested is unreasonable. The material submitted by Applicant is not of the same calibre as that in the Cherokee case, and that case is distinguishable on its facts from the case at bar. Finally, there is no question that the final Agency decision is that of the Associate Administrator, and regardless of what advice he or she may receive within the system on a question of weighing evidence, it is the Associate Administrator whose decision is at issue on appeal. The redacted file in this case, however, lends credence to the serious weighing that this evidence received at all levels, and displays that the level of consideration that was accorded was neither arbitrary nor capricious. There was clearly a bona fide evaluation of this evidence, with no showing of bad faith of any kind, and no showing of reversible error. The determination of the Associate Administrator on Reconsideration, dated, December 14, 1994, finding the Petitioner, J. Nowak Construction Co., Inc., to be ineligible for participa- tion in the Agency's Section 8(a) program is NOT ARBITRARY, CAPRICIOUS, OR CONTRARY TO LAW; The Motion to Strike the Agency Answer is denied. 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 C.F.R. Sections 134.32(a)(4) and 124.210(i). ___________________________ Nahum Litt Administrative Law Judge ____________________ [1] Sitting by designation, pursuant to the Amended Notice and Order dated July 27, 1995. [2] Despite Applicant's rather spirited attack on Mr. Alonzo, he was of the opinion, as shown in the redacted Agency file, that Sylvia Nowak had met the requirements of showing sufficient managerial skills to qualify her for inclusion in the program. Others, who were charged with making the decision for the Agency, disagreed and concluded that she did not have the requisite skills.