Convention Marketing Services, Inc., No. 3882 (February 3, 1994) Docket No. SIZ-93-12-30-143 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. SIZE APPEAL OF: ) ) Convention Marketing ) Services, Inc. ) ) Appellant ) ) Docket No. SIZ-93-12-30-143 Re: Jet Investments, Inc. ) ) Solicitation No. ) DAKF57-93-B-0046 ) Department of the Army ) Fort Lewis, Washington ) DIGEST A firm that leases two lodging facilities owned by its owner's former business associate at the time of its self certification, one of which is maintained by the former associate and in which the former associate also houses guests, will nevertheless not be found affiliated with firms owned by the former associate, where there is evidence that these principals have severed their business connections and that their present relationship is acrimonious. DECISION February 3, 1994 PHILLIPS, Administrative Judge, Presiding: Jurisdiction This appeal is resolved pursuant to the Small Business Act of 1958, 15 U.S.C. 631 et seq., and the regulations published at 13 CFR Part 121. Issue Whether Appellant is affiliated with firms owned and controlled by Ron Pitamber. Facts The captioned solicitation for meals and lodging for Armed Forces applicants of the Military Entrance Processing Station (MEPS) in Oakland, California was issued on August 12, 1993, as an unrestricted procurement subject to a Notice of Evaluation Preference for Small Disadvantaged Businesses (SDB) under Standard Industrial Classification code 7011 to which a $3.5 million average annual receipts size standard applies. Bids were opened on September 14, 1993. Timely protests of the SDB status of the low bidder, Jet Investments, Inc., a Nevada corporation, (Jet or Jet-Nevada), were filed on September 17, 1993, and September 21, 1993, by Convention Marketing Services, Inc. (CMS) and Specialized Contract Services, Inc. (SCS), respectively. SCS alleged that Jet is affiliated as a joint venturer with Point Marina Inn (PMI), which is owned by the Bay Area Hotel Company, Inc., and whose facilities it will lease for performance of the contract. CMS alleged that Jet is affiliated with Heritage Inn, Hayward, California (HIH), which Jet lists as its present address, and with other facilities owned by Ron Pitamber, a business associate of Jet's owner, Juliana Breece, including Heritage Inn, Concord, California (HIC), which they are alleged to have operated as co-owners of Jet Investments, Inc., a California corporation (Jet-California). The San Francisco Regional Office issued a size determination on December 20, 1993, finding Jet to be affiliated with neither HIH, HIC or any other facility owned by Pitamber nor with PMI. Its analysis of the affiliation with PMI states as follows: Jet entered into a Lease Agreement with the Bay Area Hotel Company, Inc. for the PMI on August 13, 1993 for the period of October 1, 1993 to September 30, 1996. The lease is contingent on Jet securing the MEPS contract. Under that agreement, Jet operates the PMI and agrees to hire all existing PMI staff, thereby running the PMI with Jet employees. Jet states that it has hired 43 of the previous PMI employees, with 5 individuals not accepting employment with Jet. According to the Lease Agreement, Jet leased the entire PMI premises and will be responsible for all aspects of the business operation of PMI. Jet will be paying a stated monthly rent and is also responsible for paying the taxes. In the review of the Lease Agreement, there is no indication that the Bay Area Company, Inc. and Jet have entered into a joint venture for the performance of the contract. The Regional Office analyzed Jet's relationship with HIH and HIC as follows: In response to the allegations, Jet states that in May 1990, Ron Pitamber and Juliana Breece agreed to form Jet Investments, Inc, a California corporation. Mrs. Breece held 51% of the stock and managed the corporation and Mr. Pitamber held 49% and provided technical assistance. Mrs. Breece filed the Articles of Incorporation for Jet Investments, Inc. a Nevada corporation on January 8, 1992. As of April 1993, the corporate license of Jet Investments, a California corporation, was suspended for failure to file tax returns and failure to pay income taxes. During Mrs. Breece's business relationship with Mr. Pitamber, she worked at HIH from April 1987 to October 1990 as a manager. From October 1990 to June 1993, she worked as manager of HIH and also conducted Jet business. Jet states that Mrs. Breece has never booked business for Mr. Pitamber. Jet's business address is located at the HIH and the Jet business address for the MEPS contract is located at PMI. Both offices will be located at PMI when the fictitious business name and the business license is approved by Contra Costa County.... As stated above, Jet Investments, Inc. a California corporation, the company owned by Mrs. Breece and Mr. Pitamber, has ceased operations. Mr. Pitamber has no interaction with Jet Investments, Inc. a Nevada corporation. The fact that Jet has leased housing for the MEPS contracts from Mr. Pitamber indicates a cooperative arrangement, however, it is not evident that Mr. Pitamber presently has or in the past had, the power to control Jet [sic]. It would be unreasonable to find affiliation between Mr. Pitamber and Mrs. Breece due to the nature of the lease agreement. The performance of the subject contract at PMI has no ties with Mr. Pitamber and his properties. CMS filed a timely appeal within the five-day time limit set forth in Section 121.1705(a)(2) on December 30, 1993. CMS emphasizes that size must be determined as of bid opening, i.e., September 14, 1993. CMS contends that as of that date "Jet was fully involved in the arrangement with Pitamber at HIC and HIH" and that [t]he mere fact that Jet indicates that it will be moving its offices to some other facility in the near future, if the pending procurement is awarded, and that it has or will be in the near future likewise ceasing to operate and manage the HIC facility jointly with Pitamber does not absolve the large business affiliation taint which was present at the time of their certification. Jet's owner, Juliana Breece, filed a response on January 19, 1994, stating, in pertinent part, as follows: I [Juliana Breece] had worked as manager of Heritage Inn of Hayward ("HIH") from April 1987 to October 1990. HIH was owned by Pitamber Enterprises and Plaza International (Miss Janet Lee). In 1990, I desired to start a business of administration of military lodging contracts. Ramesh (Ron) Pitamber, the principal of Pitamber Enterprises, was a lawyer with experience in hotel management who could provide technical and financial support. We thereupon formed Jet Investments, Inc., a California corporation [Jet- California]...during or about May, 1990, with myself holding 51% of the shares and Mr. Pitamber 49%. Mr. Pitamber handled all financial matters...while I managed the operation of the lodging facility [HIH] itself. In March, 1993, I requested from Mr. Pitamber audited financial statements...for submittal to SBA. Said statements were never provided, and upon investigating I later learned that [Jet-California] had been suspended by the State of California, effective April 1, 1993. Mr. Pitamber had not informed me of this suspension, and at all times refused to provide me with pertinent financial information [concerning Jet-California]. I thereupon ceased my relationship with [Jet-California], and exclusively used [Jet-Nevada] for military lodging contracts. Neither Mr. Pitamber nor Pitamber Enterprises has ever had any involvement or connection whatever with [Jet- Nevada]. I personally continued working as manager of HIH until June, 1993; since then, my sole occupation has been with [Jet-Nevada] and the administration of its contracts. Thus, when the pending procurement was bidden [sic] in September, 1993, I had no affiliation with Pitamber. Appellant CMS asserts that Jet's office is located at HIH. The lease agreement executed by [Jet-California] and Pitamber was entered into in 1990. The lease agreement...was obviously arms-length and lessor-oriented. [Jet-California] thereupon entered into a Military Sealift Command (MSC) contract the term of which was 10/1/90 to 10/1/93. After I severed relations with [Jet-California] and Pitamber, [Jet- Nevada] was awarded a 5-year extension of this MSC contract. The MSC contract is entirely administered at [Jet-Nevada's] office at Point Marina Inn in Richmond. Only the lodging itself takes place at HIH. Appellant asserts that during the relevant time, including the time of self-certification, Jet was doing business with Pitamber in a joint venture at Heritage Inn of Concord ("HIC"). There was no joint venture or similar "arrangement" at HIC. In fact, [Jet-Nevada] moved from HIC to Point Marina Inn in November 1993 after termination of the lease; the SBA received notification thereof. The former HIC lease between [Jet-Nevada] and Pitamber...was comprehensive and arms- length. The obligation of [Jet-Nevada] was to administer the Military Entrance Processing (MEPS) contract, and the lease covered only that portion of the HIC facility which was necessary for that purpose. Pitamber had its own guests in the balance of the hotel. Its obligation was to maintain the MEPS portion of the hotel, along with its own portion. Pitamber had nothing to do with MEPS administration, and [Jet-Nevada] had nothing to do with hotel maintenance.... After alleging that Pitamber plans to enter a joint venture with CMS should the latter receive the present MEPS contract, Breece concludes by stating that "the relationship between myself and Pitamber not only does not constitute an affiliation, but is entirely acrimonious." 1/ Discussion CMS is correct in asserting that Jet's size status must be determined as of September 14, 1993, its date of self certification, and in noting that Jet was leasing facilities at HIH as well as HIC on that date. Did the record not indicate an estrangement between Breece and Pitamber as of that date, this lessee/lessor relationship, coupled with their former ownership of Jet-California, would have indicated affiliation under either the common facilities or the newly organized concern rule at 13 CFR 121.401(i) and (j). 2/ However, evidence of record establishes that the cooperation ordinarily ascribed to firms in such circumstances is lacking here. Breece states, under oath, that she had disassociated herself from her former business associate and characterizes their relationship as "acrimonious." She has explained why. Her actions, also documented in the record, bear her out. She is no longer involved with Jet-California and is the sole owner of Jet- Nevada. She has elected to lease premises for provision of services under the instant solicitation from PMI, rather than from HIC. Both the newly organized concern and the common facilities rules are articulated as presumptions; i.e., "affiliation generally arises" when the elements enumerated therein are in evidence. However, it would be unreasonable, given the record evidence of the estrangement that exists between Breece and Pitamber, to find their respective firms affiliated With each other based on an implied cooperation which clearly does not exist. Therefore, the Regional Office determination Will be affirmed. Conclusion The Regional Office determination 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 ___________________________________ Gloria E. Blazsik (Concurring) Administrative Judge ___________________________________ G. Stephen Wright (Concurring) Administrative Judge _______________ 1/ Pitamber filed a response to the appeal on January 19, 1994, disavowing any loans or commission payments to Breece alleged in the protest. Breece, too, attests to these facts. 2/ The text of these rules states as follows: (i) Affiliation throuqh common facilities. Affiliation generally arises where one concern shares office space and/or employees and/or other facilities with another concern, particularly where such concerns are in the same or related industry or field of operations, or where such concerns were formerly affiliates. (j) Affiliation with a newly orqanized concern. 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.