Ochoco Lumber Company, No. 3812 (August 12, 1993) Docket No. SIZ-93-6-9-66 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. SIZE APPEAL OF: ) ) Ochoco Lumber Company ) ) Appellant ) ) Docket No. SIZ-93-6-9-66 Re: Snow Mountain Pine, Ltd. ) ) Indigo Robinson Salvage Timber ) Sale ) Freemont National Forest, Oregon ) DIGEST Absent a compelling reason to determine otherwise, the general partner(s) will be found to control a limited partnership. The newly organized rule may be applied to a change in general partners for a protested concern organized as a limited partnership. The language of both the newly organized concern rule and the identity of interests rule admits of exceptions to their literal application where the circumstances suggest that a finding of affiliation would not be reasonable. DECISION August 12, 1993 PHILLIPS, Administrative Judge, Presiding: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. 631 et seq., and the regulations codified at 13 CFR Part 121. Issues Whether the limited partners who are owners of the former general partner presently have an identity of interests with the limited partnership's current management. Whether the amended limited partnership agreement precludes the owner of the general partner or its managers who hold limited partnership interests from voting on the question of removing the general partner. Whether the newly organized concern rule applies where there has been a change in the identity of the general partner of a limited partnership. Facts On June 9, 1993, Ochoco Lumber Company (Ochoco) filed an appeal of the May 5, 1993 Seattle Regional Office determination that Snow Mountain Pine, Ltd. (SMP) is small under the 500-employee size standard applicable to the captioned timber sale. 1/ This determination is the latest of four that have been issued concerning SMP during the last three years. The first was issued in 1990. In it, SMP's general partner at that time, Snow Mountain Pine Corporation (SMP Corp), was found to be owned and controlled by William Walsh, Robert Ferris and John Lillie and to be affiliated with several other firms over which Walsh and Ferris exercised control as parties having an identity of interests based on common investments, including Sequoia Associates. Because SMP Corp was found to control SMP as its general partner, SMP too was found to be affiliated with those other concerns. However, their combined number of employees (408) did not exceed the 500-employee size standard, and SMP was found to be a small business, in consequence. Ochoco first challenged SMP's size status on December 22, 1992, alleging that Walsh, Ferris and Lillie also have an identity of interests with J. Frank Leach, a director of SMP Corp and a partner in Sequoia Associates, affiliating SMP with Acme Fixture and Casework, Inc., which is allegedly controlled by Leach, and Pacific Fruit Growers and Packers, Inc., controlled by all three, and increasing SMP's number of employees to 880. Ochoco also alleged that this triumvirate, "in their own right and together with other associates" controls an additional 1,290 employees through their holdings in Timberjack Corporation and Champion Road Machinery, Ltd. and a possible additional 5,353 employees through Walsh's alleged identity of interest with Richard Blum, the owner of two other firms, National Education Corporation and URS Corporation. SMP declined to respond to Ochoco's allegations based upon an imminent restructuring that it alleged would render any valid bases for objection to its size status moot, and on January 11, 1993, the Regional Office found SMP to be other than small based upon its refusal to supply the information requested. Two weeks later, on January 28, 1993, SMP applied for recertifi cation based upon the following "significant change in the control and management" of SMP: Graves Corporation, of Hines, Oregon, has succeeded Snow Mountain Pine Corporation as the sole general partner under an Amended and Restated Limited Partnership Agreement ("Agreement") dated December 31, 1992. This Agreement (1) vests full and exclusive control over the business of the partnership in the general partner, Agreement at Sections 4, 12; and (2) requires an 85 per cent majority of the limited partner voting interests to change the general partner, Agreement at Sections 3, 14. Because management shareholders and the general partner own more than 15 per cent of Snow Mountain [Pine, Ltd.], management has absolute control of Snow Mountain [Pine, Ltd.]. Graves Corporation as general partner owns one per cent of the equity of Snow Mountain [Pine, Ltd.]. Graves Corporation is wholly owned by the Graves Family Trust dated August 26, 1987. Graves Family Trust owns as a limited partner 9.1 per cent of the voting power of the limited partners. Donald A. Graves and JoAnn Graves are the joint trustees of that trust. The directors of Graves Corporation are Donald A. Graves, JoAnn Graves (wife of Donald A. Graves), Lani Trout (daughter of JoAnn Graves), Scott D. Olmstead and Travis A. Huntley. Neither Graves Corporation nor Graves Family Trust has any employees. Donald A. Graves is the president of Snow Mountain [Pine, Ltd.]. Marshall C. Brown, Travis A. Huntley, John B. Maple and Scott D. Olmstead each are vice presidents of Snow Mountain [Pine, Ltd.] and, with Donald A. Graves, constitute the management of Snow Mountain [Pine,Ltd.]. Brown, Huntley, Maple and Olmstead each own 2 per cent of the voting power of the limited partners, or 8 per cent in the aggregate. These ownerships of Graves, Brown, Huntley, Maple and Olmstead total 17.1 per cent, sufficient to provide complete control for their management through the general partner. In addition, Donald A. Graves, Brown, Huntley, Maple and Olmstead are the officers and directors of Snow Mountain Investment, Inc., which owns 13.9 per cent of the voting interest of Snow Mountain. Snow Mountain Investment, Inc., has no employees. Snow Mountain Investment is owned by nine investors who have no other relation to Snow Mountain [Pine, Ltd.] and whose direction to the officers and directors of Snow Mountain Investment, Inc., is neither needed nor able to control Snow Mountain. None from among Donald A. Graves, JoAnn Graves, Trout, Brown, Huntley, Maple or Olmstead has an affiliation with any other business entity. Thus, there is no other entity whose employees should be combined with Snow Mountain's to determine Snow Mountain's size status.... Snow Mountain Pine Corporation, the former general partner, is now known as WLF Company. WLF Company exercises no management rights or control over the partnership and has no ability to do so. It is owned by William Walsh, Robert Ferris and John Lillie. None is an owner, director or officer of Graves Corporation. Each retains a limited partnership in Snow Mountain [Pine Ltd.], but under the terms of the present partnership agreement, their voting interest is not sufficient to exercise control over the general partner and management either individually or in combination with each other, or even in combination with all nonmanagement partners, including Snow Mountain Investment, Inc. As a result, any affiliations of Walsh, Ferris or Lillie are not relevant to a determination of Snow Mountain's size status. SMP reported 140 employees during the relevant accounting period. Upon inquiry of the Regional Office, SMP indicated that it has a "one-year contract for financial consulting services with Sequoia Associates, a firm owned by Robert Ferris and William Walsh, who are also non-controlling limited partners in [SMP];" that Lillie is a director of two other companies and does not own more than ten percent of any firm; and that Ferris and Walsh own 42.86 and 52.14 percent, respectively, of Sequoia and are both directors of Newell Industrial Corporation and of Champion Road Machinery, Ltd. (of which Walsh owns 15.9 percent of the stock). Based upon this information, the Regional Office found that SMP is controlled by its general partner, the Graves Corporation, (Graves), that it is affiliated with Snow Mountain Investment, Inc. based on common management, and that, based on their aggregated numbers of employees, SMP should be recertified under the 500-employee size standard, effective February 25, 1993. 2/ On April 2, 1993, Modoc Lumber Company (Modoc) filed a size protest against SMP in connection with the captioned timber sale, contending that SMP continues to be affiliated with the Walsh, Ferris and Lillie group (Walsh group) of companies, despite its recent restructuring. Citing Size Appeal of Interactive Resources. Inc., No. 3168 (1989) in support, Modoc contends that the presumption of control accorded Graves as SMP's general partner has been rebutted by the continuing business connections and identity of interests among those limited partners associated with the Walsh group, the extent of which suggests that this group, rather than the Graves management group holding just over 15 percent of SMP's voting power, controls SMP. Modoc also alleged that SMP continues to be affiliated with SMP Corp, now WLF Investment Corp (WLF), and the Walsh group, under the newly organized concern rule in 13 CFR 121.401(j), which provides as follows: Affiliation generally arises where former officers, directors, principal stockholders, and/or key employees of one concern organize a new concern in the same or a related industry or field of operation, and serve as its officers, directors, principal stockholders, and/or key employees, and the one concern is furnishing or will furnish the other concern with subcontracts, financial or technical assistance, bid or performance bond indemnification, and/or other facilities, whether for a fee or otherwise. Modoc pointed out that Graves was recently organized, in January, 1993, that its principals, Graves, Olmstead and Huntley, were former officers and key employees of SMP Corp, that both SMP Corp and Graves are engaged in the forestry industry, and that Sequoia's provision of financial consulting services and the capital infusion by the limited partners controlled by the Walsh group constitutes "financial assistance" within the meaning of the regulation. Modoc argued that, since there is no "clear line of fracture" between SMP Corp and Graves, Graves is a "newly organized concern" affiliated with SMP Corp and that all affiliates of SMP Corp and the Walsh group continue to be affiliated with SMP through its new general partner and to disqualify it, based on their added numbers of employees, as small under the 500-employee size standard. Ochoco filed a second size protest against SMP on April 6, 1993. Ochoco, too, alleged that SMP continues to be affiliated with SMP Corp/WLF, notwithstanding the restructuring, and with several other companies controlled by the Walsh group, based on the newly organized concern rule, under which both Graves and SMP can be considered newly organized; on the fact that SMP Corp/WLF is essentially SMP's "guarantor" because it "remains the debtor for all of Snow Mountain's outstanding financial obligations, including its sawmill equipment," negotiated during SMP Corp's tenure as SMP's general partner; on the fact that members of the Walsh group, including the Ferris, Leach, Lillie and Walsh Family Trusts, are the principal beneficiaries of the limited partnership 3/ (citing Size Appeal of Allen and Hoshall. Ltd., No. 3637 (1992)); and on the fact that Ferris and Walsh remain involved in SMP's financial management through their ownership of Sequoia. Ochoco also challenged SMP's assertion that the Graves management group controls removal of Graves as the general partner through its ownership of over 15 percent of SMP's voting power, noting that there is no agreement requiring "management" to vote as a block to prevent Graves' ouster. Ochoco requested that SMP be required to provide information on all general and limited partners' affiliations with other firms on its SBA Form 355, so as to assess which of these companies is also affiliated with SMP. The Regional Office required and received copies of SMP's SBA Form 355, Application for Small Business Determination, and SBA Form 1340, Size Determination Affiliation Supplement, as well as its response to Modoc's and Ochoco's allegations. In its determination issued on May 5, 1993, it found SMP to be controlled by Graves and to be affiliated with Graves, the Graves Family Trust, Snow Mountain Pine Investment, Inc. and the latter's principal owner, Anglo Arabic Investment Corporation. It declined to find affiliation with SMP Corp/WLF or with other members of the Walsh group of companies. It rejected allegations that the financial consulting agreement with Sequoia constitutes assistance, or that the newly organized concern applies to a change in general partners, and noted both that the 85 percent requirement for removing the general partner insulates Graves (and SMP) from control by the Walsh group and that, based on review of the "list of SMP investors listing their units held for each category of investment in SMP along with their percentage voting share for votes of the partnership," it "does not appear that the Walsh/Ferris group are the principal beneficiaries" of the limited partnership. The Regional Office explained in its determination that "[b]ecause of the above findings, the SBA did not ask for further information on all limited partners or investigate the full extent of the holdings of each limited partner tin other firms]." Ochoco's appeal of this determination on June 9, 1993, contends that the Regional Office simply affirmed its February 25th recertification, in which proceeding third parties who might have offered countervailing evidence were barred from participating by the regulations, rather than instituting a new investigation responsive to the protest allegations. Ochoco further contends that the Regional Office failed to examine the "totality of the circumstances" or to consider the "practical realities of business life" when evaluating the connections between the Graves management group and SMP Corp/WLF and the Walsh group. It points out that the new general partner "is still under the day-to-day management of the same individuals, n who "occupy their positions at the will of the former general partner," and that the Graves management group has an identity of interests with the Walsh group. In support, Ochoco points to the "longstanding relationship among the president of the current general partner [Donald Graves], the management of Snow Mountain [Graves, Brown, Huntley, Maple and Olmstead] and the owners of the former general partner [SMP Corp - Walsh, Ferris and Lillie];" to the fact that replacement of SMP Corp as the general partner and amendment of the limited partnership agreement, ostensibly to divest the Walsh group of any power to control SMP, required the cooperation and approval of SMP Corp and the Walsh group; to the fact that Sequoia continues to provide financial advice to SMP; and to the fact that the Graves group has also replaced Ferris, Walsh, Lillie and Leach as directors of Snow Mountain Investment, Inc., which owns 13.9 percent of SMP's voting power. As a separate, but correlative argument, Ochoco contends that any power on the part of the Graves group to forestall Graves' removal as the general partner, should relations between the Graves and the Walsh groups turn acrimonious, is an illusion and, by extension of its allegations of cooperation between the two groups, an intentional one designed to suggest a shift in power and control where none has occurred. In this regard, Ochoco argues that the Graves management group does not possess the requisite percentage of voting power needed to defeat an action to remove Graves as SMP's general partner because the December 31, 1992 amended limited partnership agreement bars the general partner from voting on this issue and, as its owner and alter ego, the Graves Family Trust i8 thus prohibited by the terms of the agreement and the implications of California law from exercising its 9.1 percent voting power, leaving the Graves management group with only 8 percent. 4/ Ochoco also points to continuing financial ties between SMP Corp/WLF and SMP as evidence of their continuing affiliation. Specifically, Ochoco alleges that, as SMP's general partner during the formative years in which its major debt was contracted, SMP Corp remains liable on these debts and is "the one to whom the bank will look" in the event of any default. It argues that SMP Corp/WLF "essentially guarantees Snow Mountain's current financial obligations," in consequence, and that this reliance on its former general partner's "financial wherewithal," coupled with Sequoia's consulting agreement under which "[k]ey principals of the former general partner continue to act as the representatives of Snow Mountain in Snow Mountain's banking and lending relationships," creates affiliation under SBA's regulations between SMP and SMP Corp/WLF and the Walsh group. These financial ties also constitute that "financial assistance" necessary to Ochoco's argument that SMP is affiliated with the Walsh group under the newly organized concern rule. Pointing out that Graves was organized in January, 1993, and is owned by SMP Corp's former president, that its remaining principals, Brown, Maple, Olmstead and Huntley are former officers of SMP Corp, and that both SMP Corp/WLF and Graves are in the business of "running a forest products company," Ochoco claims that all criteria of the newly organized concern rule have been met and that the absence of a "clear line of fracture" between SMP Corp and Graves bespeaks affiliation between SMP and the Walsh group whether Graves or SMP is denominated the "new" concern. SMP responded to Ochoco's appeal on June 25, 1993 with the following abbreviated 5/ explanation of SMP's history as it illuminates the changing relationship between management and the Walsh group: Donald A. Graves, now the president of Snow Mountain, first focused his attention on what is now Snow Mountain's sawmill in Hines, Oregon, as the result of a letter disseminated by Price Waterhouse, which stated that a client had a lumber manufacturing facility for sale. Graves' interest in the mill arose from his 34 years of experience in the timber and sawmill business, beginning as a financial officer for small companies in the late 1950's and climaxing as a senior executive of Southwest Forest Industries, Inc. in the 1980's. Southwest was sold in 1987 to Stone Container Corp. Graves left Stone in January 1988. After considering financing with two interested banks, Graves ultimately was introduced to William D. Walsh, Robert A. Ferris, John M. Lillie and J. Frank Leach of Menlo Park, California, whose Sequoia Associates ("Sequoia") helped Graves assemble a limited partnership to purchase the mill. (For ease of reference, Walsh, Ferris, Lillie, Leach, Sequoia Associates, and Snow Mountain Pine Corp., the former general partner of Snow Mountain and now named WLF Investment Corp., may sometimes collectively be called "the Walsh/Ferris group".) The purchase of the Hines operation by the limited partnership, Snow Mountain Pine of Oregon, Ltd., 6/ was announced in early December, 1989. Over time, Graves recruited Marshall C. Brown, Travis A. Huntley, John B. Maple and Scott D. Olmstead, to join him in running Snow Mountain. None had any prior knowledge of or contact with the Walsh/Ferris group. All were in the forest products business and had previously been employed by Graves, either directly or indirectly, in Southwest Forest Industries, Inc. or Stone Container Corp., with the exception of Maple, who had worked for Southwest Forest Industries, Inc., but had not been employed by Graves. [Footnote added.] The original sole general partner of Snow Mountain Pine of Oregon Ltd. was Snow Mountain Pine Corp., owned by Ferris, Walsh and Lillie. Graves was a limited partner, and served as president of Snow Mountain Pine of Oregon Ltd. and as president of Snow Mountain Pine Corp. The SBA determined on June 15, 1990, that Snow Mountain was a small business concern under this structure. 7/ [Footnote added.] By mid-1992, Snow Mountain began planning a change in general partner. The owners of the general partner had fulfilled their role in helping Snow Mountain through its formative phase, did not wish any longer to have any control, and wished to pursue other interests. In December, 1992, as this change was nearly ready to take place, Ochoco protested Snow Mountain's size status in connection with a timber sale. Because the change was about to occur and the protest decision would thus affect only one timber sale, Snow Mountain did not contest the protest. The change in general partner took place even before the formality of the protest decision. Size Determination Memorandum, Case No. 10-SD-93-010 (January 11, 1993). The change in general partner and amendment of the Snow Mountain limited partnership agreement put into the hands of Snow Mountain's five managers (Graves and his family, Brown, Huntley, Maple and Olmstead) both full control of Snow Mountain and the ability to defeat any vote to remove Graves Corp. as the sole general partner. Snow Mountain Pine Corp. became a limited partner under the new name of WLF Investment Corp. ("WLF") SMP argues that Ochoco's appeal is based on its mistaken impression that members of the Walsh group, rather than Donald Graves, initiated the "Snow Mountain deal and therefore must still be pulling the strings of their puppets from behind the scenes." SMP has submitted signed, sworn statements from Huntley, Brown, Maple and Olmstead supporting SMP's statement that they each were recruited by Donald Graves, had had no prior acquaintance with any members of the Walsh group, and received a limited partnership share upon commencing employment with SMP. SMP had earlier submitted to the Regional Office the April, 1993 signed, sworn statements of Walsh, Lillie, Leach and Ferris stating, inter alia, with respect to each, that he "does not exercise, and has no power to exercise, either positive or negative control over Snow Mountain Pine Ltd., or the general partner of Snow Mountain Pine Ltd.," 8/ and contends on appeal that such statements must prevail over Ochoco's "theories, opinions and misstatements" to the contrary, under 13 CFR 121.1606(e) governing the weight to be accorded "specific signed factual evidence." SMP argues that attributing control to individuals who provided initial "investment assistance and start-up management help" for as long as they retain an investment in the company would discourage such investment strategies and would be productive of "bad public policy." SMP contends that Size Appeal of Allen & Hoshall, supra, cited by Ochoco, is the exception which proves the general rule that the general partner controls a limited partnership. It notes that the contrary finding in Hoshall was based on one limited partner's receipt of 95 percent of the firm's profits, as well as other factors also not present in this case. SMP supports its argument that Graves has absolute control of SMP as its general partner and that the Walsh group has been effectively prevented from reasserting day-to-day control, by citing the requirement that an action to oust Graves be supported by 85 percent of SMP's voting shares and has submitted an opinion of counsel that the alter ego theory is inapplicable here and that the Graves Trust, as a limited partner owning the general partner, would nevertheless be able to vote under the terms of the limited partnership agreement in an action to remove Graves as SMP's general partner. SMP argues that no identity of interest exists between the Graves and the Walsh groups which would either defeat the element of control secured by the 85 percent requirement or otherwise create affiliation between SMP and those companies controlled by the Walsh group. It argues that the existence of common investments, not mere cooperation, is the predicate for finding an identity of interest and notes that the Walsh and the Graves groups have no common investments other than in SMP and thus no identity of interest that would require aggregation of their voting shares in this regard or inclusion of other firms as affiliates of SMP. SMP also contends that the newly organized concern rule is inapplicable to SMP's change in general partners and that, even were it relevant, "operating a sawmill and investing in one" are not the same and do not meet the "field of operations" criterion. It argues further that Sequoia's financial consulting agreement alone is insufficient for a finding of "assistance," which has only been determined to exist where more than one type of assistance is involved, and that it "is short-term, it is for a small amount of money paid by Snow Mountain, it provides no financing to Snow Mountain, and it calls for no services that are not available from any number of sources." SMP adds that "it most certainly does not make any 'financial wherewithal' of Sequoia available to back Snow Mountain in obtaining financing." SMP rejects Ochoco's allegation "that Snow Mountain Corp./WLF remains the entity that essentially guarantees Snow Mountain's current financial obligations, including its bank obligation," explaining that Snow Mountain's banking obligations are pursuant to an agreement of December 7, 1989, with its banker that continues in effect. That agreement defines "partner" as "the General Partner and any Limited Partner." It further provides: "Non-Recourse to Partners. Lender agrees that, unless such Partner shall otherwise consent in writing that it is an obligor, no Partner shall be personally liable for the Liabilities, and Lender shall look only to borrowers, and the assets and income of Borrowers, for payment of the Liabilities. No general or limited partner of Snow Mountain has provided such consent. Thus, the bank could not look to the former general partner, or any other partners.... In fact, other than an equipment lease, Snow Mountain has no significant financing other than under the 1989 agreement with its bank. On July 6, 1993, Ochoco filed a response to several issues discussed by SMP. It points out that affidavits filed by members of the Walsh group disclaiming control of SMP are self-serving and "conclusionary" in nature and do not constitute "factual evidence" within the ambit of S121-1606(e). It continues to allege substantial deficiencies in the Regional Office's investigation of the financial ties between SMP and SMP Corp, noting that it could not have examined or even considered the December 7, 1989 banking agreement referenced in SMP's response. Ochoco disagrees that an identity of interests requires common investments, citing Size Appeal of The Emmes Corporation, No. 3730 (1993), in which certain employees were found to have an identity of interests with their employer, and rejects SMP's distinction between itself and the challenged firm in Hoshall as follows: Snow Mountain contends that "there are more than 30 limited partners with none dominant.... N Snow Mountain's response at 8. Snow Mountain can only make this claim if it does not aggregate those of the limited partners that have a clear identity of interest such as WLF and the trusts controlled by its principals. Aggregating only the voting share interests of WLF and the Erickson, Ferris, Leach, Lillie, and the Walsh Family Trusts reveals a 32% interest held by this affiliated group.... 9/ This constitutes the largest single block of voting interests in Snow Mountain. If the interests of Graves Corp., Graves Family Trust, Snow Mountain Investment, and Messrs. Huntley, Olmstead, Maple and Brown are added to the mix, the total voting interest of this entire affiliated block is 64%. [Footnote added.] On July 12, 1993, SMP opposed the submission of this response because it was filed, without a showing of good cause, after the deadline set forth in the notice of appeal for the submission of information and because the arguments made "add nothing" to the record. The response has, nevertheless, been admitted and reviewed in the interests of developing a full and complete record in this matter. Discussion The general partner has traditionally been considered to control a limited partnership for purposes of assessing affiliation and consequent size status. See Size Appeal of Interactive Resources. Inc., No. 3168 (1989). Those circumstances in which it has been found otherwise have been rare and have involved scenarios in which the connections between the limited partner and general partners have been so extensive as to admit no distinctions between them with respect to control of the limited partnership. Thus we held in Size Appeal of Allen and Hoshall. Ltd., No. 3637 (1992) that the limited partner owning 95 percent of the limited partnership shares (and receiving 95 percent of the profits, in consequence) controlled the protested concern, which obtained services from and had a mutual loan agreement with the limited partner and three of whose general partners owned shares in the limited partner and were on its board of directors. We are asked here to determine whether SMP is another such exception, and the decision has not been an easy one. Certain of Ochoco's allegations are valid: concerning SMP's alleged identity of interests among members of the Graves management group, there is no agreement binding them to vote as a unit and no common investments in other concerns that would invoke the presumption of concerted action and consequent control embodied in the identity of interests rule. 10/ The amended limited partnership agreement appears to disallow that ownership of shares in the limited partnership and attendant voting power in the hands of management (other than the Graves Corporation itself) that is essential to SMP's claim that Graves cannot be removed as the general partner because management controls 17.1 percent of the voting power and that its control of SMP is thus "absolute." 11/ The newly organized concern rule is not barred per se from use where, as here, the shift in control is between a concern's former and its new general partner. SMP is newly organized in a sense consonant with our previous constructions of the rule. 12/ All other criteria organization of Graves by officers of SMP Corp, similar fields of operation, 13/ and assistance - are present, although evidence of the latter is less than compelling in its implications. Yet we are left with the fact that both bases for rejecting the general partner as the entity in control of SMP rely on regulations articulated, in essence, as presumptions 14/ and that to apply them to the circumstances in this case would be unreasonable and would ignore SMP's history and origins and the valid reasons, independent of issues relating to its size status, that led to its restructuring. We find SMP's explanations in this regard to be credible and to be consistent with the affidavit testimony and documentation produced: specifically, the extensive technical expertise of the Graves management group, affidavits from Huntley, olmstead, Maple and Brown concerning their recruitment by Graves, 15/ the fact that members of the Graves management group are involved in no other businesses, particularly none also involving the Walsh group, and the realities of small business financing, which frequently require investment strategies like that encountered in this case. Thus, actions such as SMP Corp's relinquishment of control as SMP's general partner seem less the products of circumvention than the natural evolution of a growing small business concern. In consequence, what we see here is not an identity of interests among members of the Graves and Walsh groups, inferred from their long-standing relationship and from their cooperation in effecting SMP's restructuring, but the withdrawal from control of those who have invested in a concern and retained control of it until the technical personnel have established their capacity to continue operating the business effectively and thereby protect that investment. There is evidence that management has 17.1 percent of the voting power, and it may reasonably be inferred that the members of management will vote as a unit to preserve their control over SMP. This group's cohesion and mutuality of professional interests have been evident from SMP's inception and constitute that "concert of purpose and efforts" which we recognized in Size Appeal of The Emmes Corporation, No. 3730 (1993) as creating an identity of interests among employees engaged in certain tasks on behalf of themselves as well as their employer. Under the circumstances, it is less reasonable to assume that consensus will be found among limited partners holding the remaining voting shares necessary to comply with the 85 percent ouster requirement, without which Graves would remain the general partner in control of SMP. This 85 percent requirement is a signal barrier to denying control by the general partner. We have certainly found such control to lie with the general partner under circumstances manifesting far less control over removal than exists here. In so holding, we reject Ochoco's contention that the Graves Family Trust, as owner of the General Partner, is barred from voting on the ouster issue. Although paragraph 14.1 of the amended limited partnership agreement provides for Graves' ouster by a vote of "the outstanding Class A and Class B Units held by persons other than the General Partner," the term "General Partner" is narrowly and precisely defined in paragraph 1.12 as the "Graves Corporation." Thus we find no bar in the agreement to a limited partner who is also the owner of the general partner voting on the question of ouster. 16/ Of course the problem, in this case, is that those who formerly controlled SMP have retired from management but remain in possession of approximately one third of SMP's investment units. So SMP poses the question: Need these parties have divested themselves of these interests upon abdicating control? And, if so, is such a requirement by judicial fiat fair? Or is it prudent public policy? We think not. The beneficial interests that members of the Walsh group continue to hold in SMP are not excessive: approximately 33 percent of the voting shares and of the investment units. While the Graves group's investments constitute only 8 percent of the total investment in SMP, this is not dispositive in the case of a limited partnership. The power to control SMP derives from Graves' management role as its general partner, not from the Graves group's investment interest in the concern. 17/ Nor is the fact that, as SMP's former general partner, SMP Corp remains liable for actions taken by SMP during its tenure 18/ or that Sequoia presently has a one-year consulting agreement, sufficient to convert the presumption in the newly organized concern rule into a finding of affiliation between SMP and those formerly in control: SMP Corp and the Walsh group. SMP is correct in its assertion that more than one type of assistance is required in order to comply with the requirements of the newly organized concern rule. Here we have more than one, but only the consulting agreement constitutes assistance in the conventional sense. Unlike those liabilities arising under its banking agreement, SMP does not deny that liability may attach to SMP Corp by virtue of extant equipment leases. Nevertheless, this form of alleged assistance, like the capital infusion from the limited partners at SMP's inception, represents an unusual construction of the term "assistance" in the regulation. While we do not hold that such interrelationships could not be found to create affiliation in future cases, we find that their existence in this case is not determinative of affiliation under the newly organized concern rule. To find otherwise, would elevate form over substance with no practical consequence, since we could and would still exercise that discretion inherent in the term "generally," i.e. "[a]ffiliation generally arises," and decline to make a finding of affiliation on this basis. Although the Regional Office erred in determining that the newly organized concern rule cannot be applied to the facts presented here, our analysis, upon its application, produces no different ultimate result from that reached by the Regional Office. SMP is affiliated only with Snow Mountain Investment, Inc. In the absence of affiliation with SMP Corp/WLF and the Walsh group, there needs be no further inquiry at this time concerning the latter's affiliations with other concerns. 19/ We hasten to add that, while present circumstances do not suggest affiliation, certain future actions, such as further recourse to assistance from the Walsh group, might well manifest a renewed identity of interests or other basis for a finding of affiliation that would dictate a different result. In their absence, however, the Regional Office determination that SMP is not affiliated with SMP Corp/WLF and the Walsh group and that it is small under the 500-employee size standard is affirmed. Conclusion The Regional Office determination that SMP is small under the 500-employee size standard is AFFIRMED; the appeal is DENIED. This constitutes the final decision of the Small Business Administration. See 13 CFR 121.1720. ___________________________________ Jane E. Phillips (Presiding) Administrative Judge ____________________________________ Michael S. Cole (Concurring) Administrative Judge ____________________________________ Elwin H. White (Concurring) Administrative Judge _______________ 1/ Ochoco certifies that it received the determination on May 10,1993. Although the appeal was not filed within the five- working-day period and thus does not apply to the instant timber sale, it was filed no later than 30 days following receipt of the determination appealed and thus applies to future timber sales. 13 CFR 121.1705(a)(1). 2/ The recertification procedures set forth at 13 CFR 121.1607 admit of no third party challenges to an application, and none was submitted. 3/ Ochoco notes that SMP's voting power is not representative of the benefits accruing to the various limited partners. Voting power is confined to the class A and B units, which constitute less than ten percent of SMP's partnership units. Ochoco points out that the actual value of the class A and B units is "substantially less than 10 percent of the value of/all of the partnership units, H which is based upon the amounts of capital invested and consequent guaranteed rates of return. 4/ Paragraph 14.1 of the amended limited partnership agreement provides as follows: A general partner may be removed from the partnership only upon the vote of Limited Partners holding 85 percent of the outstanding Class A and B Units held by persons other than the General Partner. Paragraph 1.12 defines the term "General Partner" as "Graves Corporation, an Oregon corporation, or any person or entity succeeding any such person or entity as a General Partner." 5/ SMP proffered a somewhat longer explanation to the Regional Office in response to the protests filed by Modoc and Ochoco. 6/ SMP's name was changed to Snow Mountain Pine, Ltd. in 1992. 7/ SMP fails to mention, however, that SMP was found in that determination to be affiliated with SMP Corp. 8/ Each affiant also attested to the fact that he is neither a principal nor an employee nor has any other interest in Snow Mountain Investment, Inc., or its principal owner, Anglo Arabic Investment Corporation. 9/ In a parenthetical, Ochoco notes that it has not been provided with the complete investor record which shows the amounts of the individual limited partners' total investment in Snow Mountain but only with the last column which shows the percentage of voting shares. Ochoco assumes that the total investment held by these limited partners results in a similar percentage of total ownership. 10/ The rule, located at 13 CFR 121.401(d), provides as follows: Identity of interest between and among persons as an affiliation determinant. Affiliation can arise between or among two or more persons with an identity of interest, such as members of the same family or persons with common investments in more than one concern. In determining who controls or has the power to control a concern, persons with an identity of interest may be treated as though they were one person 11/ Paragraph 5.1 of the amended limited partnership agreement states that n [p]urchasers of units, other than the General Partner, shall become 'Limited Partners.' n Paragraph 12.1 states, with an exception not relevant here, that "Limited Partners shall take no part in the control, conduct or operation of the [limited] partnership, and shall have no right...to control or influence The General Partner.... H 12/ See, Size Appeal of I.T.E. Contractors and Rental. Inc., No. 1922 (1984) in which we held that a change in the "official corporate name to reflect an entirely new line of business just prior to bidding" qualified the protested concern as "newly organized" within the meaning of the rule. 13/ The distinction drawn by SMP between running a lumber mill and investing in one, where the firm has managed the mill as its general partner, is not a viable one. 14/ We have said as much in Size Appeal of Golden Bear Arborists. Inc., No. 1899 (1984) regarding the identity of interests rule. 15/ We contrast these with the conclusory affidavits submitted by Walsh, Ferris and Lillie which do not constitute "factual evidence" under S121-1606(e). 16/ A more troubling aspect of the agreement is the bar in paragraph 12.1 to a limited partner's [taking part in the control...of the [limited] partnership" or of "the General Partner." However, we find that this provision, which attempts to preserve the limited liability regarding third parties that is reserved to limited partners as a matter of law has no applicability in this case to questions concerning its internal operations and affiliation under Part 121. 17/ The finding in Size Appeal of Allen and Hoshall, supra, depended not only on the limited partner's 95 percent "beneficial interest" in the limited partnership but, more importantly, on the general partners' connections with the limited partner. Thus, even were we to adopt Ochoco's suggestion and aggregate additional investment units with those claimed by the Walsh group, no control would necessarily follow. The concept of control based on percentages of shares owned in a company is a feature of corporate law, and Hoshall should not be read to have obscured this distinction between corporations and limited partnerships. 18/ We distinguish these liabilities from the banking obligations which we are persuaded are subject to the nonrecourse provisions of SMP's banking agreement and thus do not presently accrue to SMP Corp. 19/ Examination of the Regional Office record reveals, in answer to Ochoco's arguments concerning the adequacy of the investigation, that the Regional Office did not merely rely on information submitted during the recertification process in rendering the determination appealed here but required SMP to file new SBA Forms 355 and 1340 as well as to respond to the allegations raised in Modoc's and Ochoco's protests. Upon receiving only a partial listing of SMP's limited partners on the Form 355, the Regional Office further required SMP to supply the full list as well as the numbers of voting shares and investment units held by each person or entity listed.