BENMOL CORPORATION, No. MSB-516 (July 19, 1995) Docket No. MSBE-94-12-23-50 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON,D.C. 20416 IN THE MATTER OF: ) ) Docket No. MSBE-94-12-23-50 BENMOL CORPORATION ) APPEARANCES For the Appellant: For the Agency: Pamela J. Mazza, Esq. John T. Spotila 888 17th Street, N.W. General Counsel Washington, D.C. 20006 Katherine C. Power Agency Representative 409 3rd Street S.W. Washington, D.C. 20416 DIGEST Findings by the Associate Administrator that the applicant failed to provide clear and convincing evidence of social and economic discrimination as those terms are used and applied in the Small Business Administration's Section 8(a) set aside program is not arbitrary and capricious. Final Decision July 19, 1995 Nahum Litt, 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 (1) Did the Acting Associate Administrator for Minority Enterprises Development (Associate Administrator) act arbitrarily and capriciously in finding that a company owned by a person claiming social and economic disadvantage was not socially and economically disadvantaged as that term is used in the statute and regulations? (2) Did the Associate Administrator improperly apply the standard of proof in determining that the applicant had not provided clear and convincing evidence of social and economic discrimination? STATEMENT OF THE CASE By application filed January 27, 1994, Benmol Corporation applied for inclusion into the SBA's Section 8(a) program. The Associate Administrator denied this application by letter dated May 18, 1994, and applicant filed a Petition for Reconsideration on June 30, 1994. By letter dated November 9, 1994, the Associate Administrator denied this Petition. This appeal was filed on December 23, 1994, and the Agency filed its response on February 6, 1995. POSITION OF THE PARTIES On appeal, the petitioner argues first that the standard of clear and convincing evidence was misapplied in this case. Its position is that the Agency has required of this applicant a higher burden of proof than set out in its regulations, has without justification refused to give its verified evidence, which petitioner claims is unrefuted in any way, full value, and has ignored its own directions as to how the regulations are to be viewed in determining whether an individual applicant is socially and economically disadvantaged. Petitioner, specifically attacks the Associate Administrator's failure to give its verified evidence full credence, claiming that the Associate Administrator has no basis upon which to find that such evidence is not clear and convincing. The Petitioner also argues that it is not required to prove social and economic disadvantage as to each element in the regulation, only that it must meet the definition as to some or any of the elements. For the last proposition it cites to the Agency statement in the Code of Federal Regulations in August, 1994, where the Agency commented that if the proposed rule were put in place an applicant would not have to meet each of the five criterion established for showing social and economic disadvantage.2 The Agency argues first that the proposed rule relied upon by applicant was not in effect at the time this application was processed, has not been adopted, and is not applicable. The Agency's position on the submitted evidence is that the affidavits were all filed by relatives or close business associates, and, therefore, are not objective. Therefore, even if there is no other evidence, given the nature of what has been submitted, it is entirely proper for the agency to find that the submitted evidence is not clear and convincing evidence of discrimination. The Agency views the applicant's success of obtaining a college degree, finding employment, and starting a business which has access to some financial markets as more than adequate evidence that the owner, Mr. Molayem, is neither socially or economically disadvantaged. The Agency further argues that there are many reasons why contract bidding is not successful and that the affidavits submitted to show a loss of two contracts does not amount to convincing evidence that the contracts were not awarded because of discrimination against him as a person of Iranian descent. The Agency also denies that it used any improper comparisons in evaluating Applicant's standing in respect to similar firms, that the error in percentages of bids is irrelevant, and that the use of a different year for comparison purposes would not yield a different result. FACTS Mr. Benjamin Molayem is President of Benmol Corporation and owns 100% of the stock. He emigrated to the United States from Iran in 1967, and identifies himself as an Iranian American. He attended one year of high school in Adelphi, Maryland, and states that the students derided him because of his heritage and poor English. This harassment caused sever headaches. He graduated from the University of Maryland in 1972 with a degree in chemical engineering. He avers that several professors actively discriminated against him because of his Iranian heritage. After graduation he attended graduate school at the University of Maryland on a part time basis and obtained his M.S. degree in engineering in 1976. Maryland was not his first choice for graduate school but, because of low grades, which he attributes to discrimination by his professors at the undergraduate level, he could not attend universities which he considers superior. He was not interviewed for on-campus recruiting and states that other students with poorer grades were both interviewed and hired from on-campus interviews. He states that this was because of his Iranian heritage. Between 1972 and 1976 he worked as a Supervisory chemical Engineer for a company, but did not supervise any personnel which he found embarrassing. In 1976 he obtained a position with a different company but left in 1978 because he believed they were discriminating against him because of his Iranian descent. He then became a Project Engineer with another company because of his expertise in boilers. He was promised advancement opportunities but believed they did not live up to their promises because of his Iranian descent. After this last experience, he gave up engineering and drove a taxicab until 1979 when he started his own business. He stated that the taxicab dispatcher discriminated against him because he was of Iranian descent. Benmol was run as a start-up business from his house and he continued to drive a taxicab. Numerous contract proposals to different agencies were not accepted between 1980 and 1989. He states that these proposals were lower priced and technically superior to those bids which were accepted and believes that the only reason his bids were not accepted was that he is of Iranian descent. An affidavit submitted by his Certified Public Accountant, who has been his CPA since 1982, and who has helped him in his bid proposals, gives several specific instances where bids were rejected despite being significantly lower than the bid accepted. He attributes these rejections as being a result of bias and prejudice. Similarly, he attributes the refusal of several banks to extend lines of credit as biased and discriminatory because of his Iranian descent. Another affidavit by a former employee who has not worked for Benmol since 1982 sets out in detail how a prime contractor sought to remove him as a subcontractor, which removal action affiant states was due to his Iranian descent. DISCUSSION The applicable regulations require, as the Agency asserts, that all five elements be shown, with clear and convincing evidence, that the applicant is socially and economically disadvantaged. At best, the cited regulation changes which are in the form of a proposed rule could be used as an equitable argument that the Agency may choose to be more accommodating, but they are not requirements. The Agency is not bound by proposed rules or by language explaining that the Agency is contemplating imposition of a more relaxed standard. Nor is there any proof here that the Associate Administrator imposed a higher standard than the clear and convincing evidence standard normally applied in reviewing submitted evidence. While it is true that two of the affidavits were filed by persons who had either a remote or only a professional relationship with the applicant, the Agency's position that the affidavits of Mr. Molayem and his wife do not rise to the credibility level that the Associate Administrator believes demonstrates social and economic disadvantage is not applying a more stringent test. The Associate Administrator can certainly weigh evidence based upon the nature of the affiant and the relationship to the Applicant. While the affidavits of the disinterested affiants may give rise to a question of the weight to be afforded verified statements, the affidavits of Mr. Molayem and his wife do not. In the denial letter the Associate Administrator refused to credit three of the proffered disabilities as causing social and economic discrimination which would form a basis for inclusion in the 8(a) program. The Associate Administrator relied on the failure of Mr. Molayem to show either a lack of educational opportunity or subsequent ability to obtain an education, a lack of employment opportunity or ability to obtain employment, or an inability to obtain financing or contracts. The decision is not without a rational basis. Despite his claimed hazing in school, Mr. Molayem attended college, obtained a masters degree, was employed by several firms and opened his own business while supporting himself in part by driving a taxicab. This record of accomplishments, even if there was discrimination in obtaining some contracts or lines of credit at some banks, is more than a sufficient basis for the Associate Administrator to find that clear and convincing evidence of social and economic discrimination warranting a grant of admission into the program had not been established. The Associate Administrator has made it clear in a number of decisions that the Agency does not favor admission into the program by partially successful businesses which are not designated as minorities in the enabling statute. Through its case law, the Agency has indicated that the standards of proof which will be applied by the Associate Administrator will require an applicant to meet each of the five requirements and that an application of an educated applicant who obtained employment in the past, and is partially successful in his or her current small business, will not be favored. This is not only perfectly permissible, but is clearly the Agency's prerogative in determining whether a particular program, designed primarily for specifically designated minorities, will be made more open to others. A small business person can qualify under the alternative standards of proof for social and economic disadvantage applied by the SBA under Sec. 124.105 (c) . The regulations permit those who are not designated minorities to apply for inclusion in the program. The Agency evaluates the evidence submitted on a stringent standard, clear and convincing, evidence. However, the marginal success of both the individual and the business makes it unlikely that inclusion in the program will occur. In sum, the Agency interprets the regulations in such a way that apparently few, if any, such non-designated applicants are able to supply clear and convincing evidence of a qualifying social or economic disadvantage.3 This is well within the range of discretion afforded the Agency by the statute and does not represent an arbitrary and capricious act on the part of the Agency. CONCLUSION The determination of the Acting Associate Administrator on Reconsideration, dated, November 9, 1994, finding the Petitioner, Benmol Corporation, to be ineligible for participation in the Agency's Section 8(a) program is NOT ARBITRARY, CAPRICIOUS, OR CONTRARY TO LAW. 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 CFR 124.210(i). Nahum Litt Administrative Law Judge _______________________ 1 Sitting by designation pursuant to the Amended Notice and Order issued on June 20, 1995. Formerly chief Administrative Law Judge, U.S. Department of Labor. 2 Vol. 59 Fed. Reg. 44652 (1994) (to be codified at 13 CFR pts 121 and 124)(proposed August 30, 1994). 3 Less than 5% of all 8 (a) program participants appear to be held by non-designated minorities. A breakdown of this 5% discloses that they include both gender related and the disabled and handicapped.