Uniband Enterprises, No. SIZ-4529 (January 10, 2003) Docket No. SIZ-2002-08-08-33 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. ) SIZE APPEAL OF: ) ) Uniband Enterprises ) Docket No. SIZ-2002-08-08-33 ) Appellant ) ) Decided: January 10, 2003 Small Disadvantaged Business ) Size Determination Case No. ) 4 2002-27 ) Office of Government ) Contracting, Area IV ) Chicago, Illinois APPEARANCES Larry M. Baer, Esq., for Appellant Uniband Enterprises. Megan O. Jorns, Esq., David A. Javdan, Esq., General Counsel, for U.S. Small Business Administration. DIGEST A party's request that its brief in a past appeal be incorporated by reference into the record of the instant appeal will be denied, when the rules limit the record of a case to submissions made in that case, each party had ample time to file pleadings supporting or opposing the appeal, and the proponent had an additional opportunity to support its position after learning that the law on which it relied was outdated. A case is not governed by res judicata when the earlier decision was not a final judgment on the merits, but merely a remand for the Area Office to consider the law and the facts. Appellant failed to show clear error of law in a size determination through the Area Office's refusal to follow precedent, when the precedent rejected was only that of the Area Office in a previous size determination and not a decision of this Office. The Area Office did not commit a clear error of law when by declining to exclude alleged joint venture receipts from Appellant's average annual receipts when Appellant did not proffer sufficient evidence to establish (a) that any alleged joint ventures were in fact joint ventures or (b) how it arrived at the amounts given as the alleged joint venturers' proportionate share. DECISION HOLLEMAN, Administrative Judge: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. Section 631 et seq., and 13 C.F.R. Parts 121 and 134 (2002). [1] Issues Whether a party may incorporate by reference a brief from a previous case. Whether a case is governed by res judicata. Whether Appellant established a clear error of law in a size determination through the Area Office's refusal to follow precedent. Whether the Area Office committed a clear error of law by declining to exclude alleged joint-venture receipts from Appellant's average annual receipts. I. BACKGROUND Appellant was established under a tribal corporate charter issued on October 5, 2000, by its owner, the Turtle Mountain Band of Chippewa Indians, as a vehicle for the reorganization of Uniband, Inc. (UI), a Delaware corporation. Appellant's predecessor, UI, participated in the Small Business Administration's (SBA) 8(a) program from May 1, 1991, until its graduation on February 12, 1999. During UI's 8(a) participation, the Small Business Administration (SBA) approved it to perform contracts under ten Standard Industrial Classification (SIC) codes. A. 1997 Appeal In 1997, on request of the SBA District Office, Sioux Falls, South Dakota, the SBA's Office of Government Contracting, Area IV (Area Office), conducted a size determination of UI. The Area Office found that, except as to three exceptions under one SIC code, UI was a large business under all ten SIC-based size standards. Size Appeal of Uniband, Inc., SBA No. SIZ-4251, at 2- 3 (1997). On appeal, UI claimed that receipts of its joint venturers should be excluded in calculating its size. Id. at 3-4. Because UI did not challenge the finding that it exceeded them, this Office affirmed the size determination as to two SIC codes. Id. at 5. As to the remaining eight SIC codes, this Office found the Area Office had erred in failing to consider whether UI, as a tribally owned firm, could exclude from its annual receipts its portion of receipts from its joint ventures. The decision was based upon the statutory "Indian Tribe Exemption," codified as a note to 15 U.S.C. Section 637 (1996), and in SBA's regulations. [2] Id. at 4-5. The decision did not mandate that the Area Office do any more than consider this issue, based on the law and the facts. On remand, the Area Office considered evidence UI presented after the size determination and found that, with only its proportionate share of joint-venture receipts considered, UI exceeded only one size standard. Size Determination No. 05-SD- 97-9, June 19, 1997, at 2-5 (Remand Size Determination). However, the Area Office also devised, from the ostensible subcontractor rule, its own theory of implied joint venture, and then employed the apportionment rule to exclude the receipts of those implied joint venturers. Id. at 5 (citing 13 C.F.R. Sections 121.103(f)(3), (4)). [3] Therefore, the precedent that the Area Office now rejects in this case-albeit in fact resulting from this Office's decision to remand the 1997 Appeal-is purely its own creature. The Area Office also considered the Indian Tribe Exemption and found that it applied to whether an 8(a) firm qualified for a particular procurement, but not to whether the 8(a) firm was a small business. Id. at 5-6. UI did not appeal the Remand Size Determination. B. The Instant Appeal This appeal relates to Appellant's qualifications as a Small Disadvantaged Business (SDB). On April 7, 2002, Appellant applied for SDB certification under NAICS code 514210, Data Processing Services, with an applicable $21 million annual receipts size standard. 1. The Size Determination On April 24, 2002, the Office of Small Disadvantaged Business Certification & Eligibility, Washington, DC, requested that the Area Office conduct a size determination. On May 2, 2002, Appellant submitted an SBA Form 355, Application for Small Business Size Determination, including a break-out of receipts paid to subcontractors and a copy of Size Determination No. 4- 1998-27. [4] Appellant supplemented this information on several occasions, the last on June 17, 2002. On July 8, 2002, the Area Office found that Appellant was not a small business. The Area Office found that (1) Appellant had no affiliates; (2) the applicable fiscal years were those ending October 31 of 1999, 2000, and 2001; (3) though Appellant had argued, under the reasoning of the previous size determinations, for exclusion of funds it paid its ostensible subcontractors, that reasoning had resulted from this Office's decision in the 1997 Appeal, based on the since-lapsed Indian Tribe Exemption; and (4) the ostensible subcontractor rule related to affiliation in contract-specific size determinations, but the apportionment rule pertained to calculation of receipts in non-contract-specific size determinations. Accordingly, the Area Office determined it would not exclude Appellant's share of its subcontracting receipts in determining its size. Therefore, excluding only net capital gains or losses, Tribal Employment Rights Office (TERO) taxes, and receipts of another tribally owned business, the Area Office determined that Appellant exceeded the size standard. Appellant received the size determination on July 11, 2002. 2. Appellant's Arguments On July 25, 2002, Appellant, through counsel, filed this Appeal. Appellant argues: (1) the res judicata effect of this Office's 1997 decision, still valid because this case involves substantially the same regulations and the same parties and facts, bars relitigating the exclusion of subcontractors' earnings; (2) Appellant's brief in the 1997 Appeal should be incorporated in the present Appeal Petition; (3) this Office determined in 1997 that the subcontractors met the regulatory requirement to be deemed joint venturers; (4) having chosen not to appeal the 1997 decision, the Area Office now was intentionally disregarding or attempting to overrule it; (5) excluding the proportionate share earned by the four subcontractors still performing under extensions of the contracts involved in the 1997 Appeal reduced Appellant to well below the $21 million annual receipts level; and (6) this Office should direct the Area Office to follow the "law of the case" set forth in the 1997 decision and exclude receipts of all joint venturers, including those implied in law. 3. The Agency Response On August 19, 2002, pursuant to the Administrative Judge's docketing notice, the Area Office filed a copy of the Remand Size Determination in the 1997 Appeal. [5] On September 26, 2002, at the Administrative Judge's request, the SBA responded to the appeal. The SBA contends: (1) the Area Office correctly found Appellant had no affiliates; (2) the now-defunct Indian Tribe Exemption had been a contract- specific provision permitting otherwise prohibited joint ventures; (3) no joint venture agreement existed here; (4) the ostensible subcontractor rule on which Appellant relied related to contract-specific size determinations and did not operate to exclude subcontractors' receipts and; (5) therefore, under the applicable regulations, the Area Office correctly determined that Appellant exceeded the size standard. While the Administrative Judge's Order gave Appellant opportunity to reply to the SBA's Response, Appellant did not do so. II. DISCUSSION A. Threshold Issues 1. Timeliness Appellant filed its appeal within 30 days of receiving the Size Determination; thus, it is timely. See 13 C.F.R. Section 134.304(a)(2). 2. Incorporation of Appellant's 1997 Brief Appellant cites no authority supporting its request that its brief in the 1997 Appeal be incorporated into the record in this case. Both this Office's regulations and this case's procedural history weigh against such a procedure. The record of a case consists of "all pleadings, motions, and other non-evidentiary submissions, all admitted evidence, all orders and decisions, and any transcripts of proceedings in the case." 13 C.F.R. Section 134.224(a) (emphasis added). Moreover, each party had ample time to file pleadings supporting or opposing the appeal. Finally, Appellant had an additional opportunity to support its position, after learning (apparently for the first time) that the statute and regulations on which it relied were outdated. Appellant failed to reply. Therefore, Appellant's request is DENIED. [6] B. Merits of Appeal To prevail on the merits in this size appeal, Appellant must establish, by a preponderance of the evidence, that the Area Office made a clear error of fact or law in its size determination. Size Appeal of HCI Construction Co., SBA No. SIZ- 4460, at 2-3 (2001); Size Appeal of Rebmar, Inc., SBA No. SIZ- 4173, at 4 (1996); 13 C.F.R. Sections 134.224, 134.314. In this instance, Appellant has failed to carry this burden. 1. Res Judicata Contrary to Appellant's res judicata [7] argument, both the underlying law and the facts have materially changed. As discussed above, the earlier decision was not a final judgment on the merits, but merely a remand for the Area Office to consider the Indian Tribe Exemption on the issue of UI's 8(a) eligibility. The Indian Tribe Exemption passed into the sunset more than five years ago. See 15 U.S.C.A. Section 637 note ("Subsection (b) [of section 602, Pub. L. 100-656, providing for award to joint ventures under limited circumstances] shall cease to be effective after September 30, 1997.") The facts also are different: UI graduated from the 8(a) program nearly four years ago. Appellant now seeks SDB certification. Though the two programs share common features, with the result that both parties in this case have sometimes confused them, they are separate programs, governed by different subparts of 13 C.F.R. Part 124, that use different methods and criteria. Accordingly, res judicata is inapplicable here. 2. The Area Office's Treatment of the 1997 Decision Appellant next argues that the Area Office disregarded or attempted to overrule the 1997 decision. However, the 1997 decision is easily distinguished from this case, and the Area Office did so. Both parties seem to misunderstand the 1997 decision. The decision did not dictate a particular result or establish a principle of law concerning the Indian Tribe Exemption. It simply ordered the Area Office to consider Appellant's evidence and consider the exemption concerning joint ventures for tribally owned firms. Uniband, SBA No. SIZ-4251, at 4-5. [8] Thus, the Area Office has rejected not this Office's precedent, but its own prior decision. An agency may reverse its own precedent if it explains its decision, justifying it with reasoned analysis and draws a reasonable conclusion. [9] British Steel v. United States, 127 F.3d 1471, 1475 (Fed. Cir. 1997). 3. The Size Determination Focusing its energies on arguing that this Office's 1997 decision espoused the implied joint venture theory, Appellant has not directly attacked the Area Office's reasoning in rejecting it. Nonetheless, the Administrative Judge has scrutinized that reasoning and finds it not clearly erroneous in fact or law. First, it is clear that the Area Office determined Appellant's size in accordance with the regulations. SBA determined Appellant's size based solely on its annual receipts, and did not consider it as affiliated with its Indian tribe, as required by regulation. 13 C.F.R. Sections 121.103(b)(2), 124.109(c)(2)(iii). The Area Office also excluded from its calculation net capital gains and losses as well as TERO taxes Appellant collected and remitted, as required by 13 C.F.R. Section 121.104(a)(1). The resulting figure exceeded the applicable size standard. Appellant's contention that 13 C.F.R. Section 121.103(f) applies here is misplaced. Paragraphs (1) through (4) of Section 121.103(f) apply to affiliation based on a joint venture when a specific contract is at issue, and thus are inapplicable here; of these paragraph (4) (ostensible subcontractor rule) addresses treatment of a subcontractor as a joint venturer with the prime contractor. Subsection (5) (apportionment rule) requires that a concern must include its proportionate share of joint venture receipts in its revenues. The Area Office properly rejected the implied joint venture theory. It correctly reasoned that the ostensible subcontractor rule related to affiliation in contract-specific size determinations but the apportionment rule pertained to calculation of receipts in non-contract-specific size determinations. This reading of the ostensible subcontractor rule is supported by a long line of OHA precedent. [10] The apportionment rule at paragraph (5) is separate from the ostensible subcontractor rule at paragraph (4), is not contract- specific, and applies only to formal joint ventures, not to those subcontracts deemed by SBA to be joint ventures under paragraph (4). The Area Office also properly refused to apply the apportionment rule. Appellant submits no joint venture agreements to document its joint ventures. [11] Appellant provided merely a list of its subcontractors, with some contract information and the amounts it asserts should be deducted from its annual receipts. Appellant asserts, but did not document, that these subcontracts were tantamount to joint ventures. Appellant's submission also did not document how it arrived at these figures or determined the amounts it alleged are the joint venturers' proportionate share of the revenues. The record lacks sufficient evidence to support Appellant's claim that these subcontracts constituted joint ventures from which the joint venturer's share of the receipts should be excluded in calculating Appellant's annual receipts. Accordingly, the Area Office correctly included them in calculating Appellant's annual receipts, and the size determination was not based on a clear error. III. CONCLUSION Accordingly, the Administrative Judge concludes that Appellant has failed to establish, by a preponderance of the evidence, that the size determination was based on clear error of fact or law. Therefore, the Administrative Judge AFFIRMS the size determination and DENIES the appeal. This is the final decision of the Small Business Administration. See 13 C.F.R. Section 134.316(b). CHRISTOPHER HOLLEMAN Administrative Judge _________________________ 1 The Small Business Administration has revised its regulations governing the small business size determination program, the small disadvantaged business (SDB) program, and appeals. 67 Fed. Reg. 47244 (July 18, 2002). However, because the Area Office size determination was issued before the September 16, 2002, effective date, the prior regulations apply. See id. at 47244 ("Applicability Date"). 2 13 C.F.R. Sections 124.112(c)(2)(iv), 124.321(h) (1996). 3 Because UI appealed on a different issue, see supra note Error! Bookmark not defined., the implied joint venturer issue was not presented to this Office and thus again evaded review. 4 The Area Office relied on the same reasoning in another size determination, No. 4-1998-27, appealed and affirmed on other grounds, Size Appeal of Uniband, Inc., SBA No. SIZ-4326, at 8 (1998). In that case, UI appealed only the Area Office's rejection of its "contention it could exclude from its average annual receipts Federal and state employment taxes." Id. 5 This evidence was produced, pursuant to the Administrative Judge's regulatory authority, to permit him to evaluate Appellant's claim that the Area Office intentionally disregarded its decision in the 1997 Appeal. See 13 C.F.R. Section 134.308(a)(1), (b). 6 Even if the law and facts justified such incorporation, examination of the 1997 docket file reveals nothing presented by Appellant in that case that is both relevant to the issues and not repetitive of other pleadings in the record. 7 Res judicata, from the Latin term meaning "a thing adjudicated," refers to "[a]n issue that has been definitively settled by judicial decision." Black's Law Dictionary 1312 (7th ed. 1999). "The three essential elements are (1) an earlier decision on the issue, (2) a final judgment on the merits, and (3) the involvement of the same parties, or parties in privity with the original parties." Id. (citing Restatement (Second) of Judgments Sections 17, 24 (1982)). 8 Though Appellant notes that the Area Office chose not to appeal the 1997 decision, neither appeal nor reconsideration was possible under the regulations. See 13 C.F.R. Sections 134.316(b), 134.317. 9 Although language in the size determination suggests the Area Office feels free to disregard this Office's decisional law, which would have been a clearly erroneous basis for its decision, the Area Office did not in fact reject this Office's precedent. 10 See, e.g., Size Appeal of Advanced Technologies and Laboratories International, Inc., SBA No. SIZ-4484, at 5 (2002); Size Appeal of Pointe Precision, LLC, SBA No. SIZ-4466, at 16 (2001). 11 Had it entered into joint ventures without such agreements and without SBA approval, it would have jeopardized its status as an 8(a) firm. See 13 C.F.R. Section 124.513. Even after Appellant left the 8(a) program, had such joint ventures not been excluded from affiliation consideration, Appellant would have been affiliated with its joint venturers. See 13 C.F.R. Section 121.103(f)(1)-(4). Posted: January, 2003