Impaq Computers, Inc., No. MSB-511 (June 20, 1995) Docket No. MSBE-94-7-15-30 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. IN THE MATTER OF: ) ) Docket No. MSBE-94-7-15-30 Impaq Computers, Inc. ) For the Petitioner: For the Agency Reza M. Hashampour John T. Spotila President, Impaq Computers, Inc. General Counsel 4001 Virginia Beach Blvd. Katherine C. Powers, Esq. Virginia Beach, Va. 23452 Agency Representative 409 3rd Street, S.W. Washington, D.C. 20002 DIGEST A determination by the Acting Associate Administrator, Minority Small Business and Capital Ownership Development, that the applicant has not presented sufficient clear and convincing evidence of social and economic disadvantage, as that term is defined in the applicable statutes and regulations within the Small Business 8(a) program is not arbitrary and capricious. FINAL DECISION June 20, 1995 Nahum 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. 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. ISSUE This case presents the issue of whether the Acting Associate Administrator (Acting Administrator) acted arbitrarily and capriciously in finding that a company owned by a person claiming social and economic disadvantage because of discrimination while obtaining a college education, during his early career, and in establishing his business was not socially and economically disadvantaged as that term is used in the statute and regulations. FACTS Impaq Computers, Inc., filed an application for inclusion in the Small Business Administration 8(a) program on March 9, 1993. The letter of denial from the Agency was issued on January 26, 1994, and a subsequent Petition for Reconsideration (filed March 9,1994) was denied on June 2, 1994. This appeal was filed on July 15, 1994 and the Agency responded. In the letter denying reconsideration, the Associate Administrator found that certain stock ownership and guarantor provisions negated Mr. Hashampour's claim of control and that Mr. Hashampour had not provided clear and convincing evidence that he was socially and economically disadvantaged as defined in the statute and regulations. This case turns primarily on the question of whether the Agency's determination that Reza Hashampour, an American citizen of Iranian descent, should be admitted to the 8(a) program on the basis of discrimination experienced by him in college, in several jobs he held before establishing the applicant company, and as President of the applicant in attempting to obtain loans and guarantees. Set out in the appendix is the four page statement submitted by Mr. Hashampour in his response to the original denial letter by the Associate Administrator where he sets out in great detail the evidence of discrimination upon which the application is premised. Succinctly, he describes hostility and prejudice encountered as a student at Georgetown College, which he attributed to his Mediterranean complexion, accent, and being an Iranian when Iran was not popular in the United States. He describes prejudicial remarks made against him in the work places where he was first employed, a failure to be promoted and paid on the same basis as non-foreign born co-workers, the use of his work product by supervisors with out attribution to him, and incidents, such as an anonymous telephone call to his wife telling her that he had been kidnapped, which reinforce his belief that he has been functioning in a society ".... that is openly hostile to persons of my heritage." His position on this issue can best be summed up in his own words where he states: My disadvantage within the area of education has not been my inability to educate myself, but the impact it has made on my life to educate myself in a society that is openly hostile to some one of my heritage. (Request for Reconsideration p. 4) He also attributes his need for having additional persons as guarantors for his business loans to prejudice by numerous banks. In support, he alleges that other individuals who have sought loans and who have no better education and management experience would have received these loans without additional guarantors. Applicant is a small computer sales and service company, specializing in the design and integration of small computer systems. It is clearly a start-up business with 1992 sales of about $400,000. It had a modest net operating loss for the year which is neither unusual or unexpected in a new business. Impaq has business loans, guarantees for lines of credit from stock holders, and has projected increased sales in an expanding market. It has a sales and marketing capacity based upon experienced employees hired primarily from other companies where Mr. Hashampour had been employed. DISCUSSION The Associate Administrator found that Mr. Hashampour's description of discrimination in education, employment, and difficulty in obtaining credit to establish his business were neither chronic, significant with respect to inhibiting his ability to function in the business community or establish lines of credit, or indicative of discrimination. Specifically, it was found that Mr. Hashampour was able to complete his college education, obtain employment, and obtain investors and business loans to start Impaq. The Associate Administrator's decisions, both in the original letter and on reconsideration, displays that careful consideration was given to each of Mr. Hashampour's described incidents of discrimination and none was found to provide clear and convincing evidence of social and economic discrimination as that term is defined and used in the statute. No finding could be made on this record that this determination is arbitrary and capricious. 2 One other matter is clear from this record. This application was prepared with the help of professional assistance, and the Agency's evaluation of the evidence submitted was thorough and painstaking. The original denial letter is ten pages, and the denial on reconsideration is three pages. This application was given great consideration by the Agency, and its position on finding social and economic disadvantage on the part of applicants who are not within the statutory presumption of disadvantage is clear. As a matter of policy, the burdens on a partially successful small business are so large as to be almost insurmountable. This a legitimate policy position, obviously rational within the context of this program, and under the standard of review applicable can not be found to be arbitrary and capricious. CONCLUSION The determination of the Acting Associate Administrator on Reconsideration, dated June 2, 1994, finding the Petitioner, Impaq Computers, Inc., 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 decision of the Small Business Administration, and is binding upon all parties, including those within the employ of the Agency. See 13 CFR 124. 210(i). Nahum Litt Administrative Law Judge Appendix (Pages 1-5 of the 14 page Request for Consideration) March 9, 1994 VIA FEDERAL EXPRESS Ms. Betty Toulson Division of Program Certification and Eligibility U.S. Small Business Administration 475 Allendale Road, Suite 201 King of Prussia, Pennsylvania 19406 Dear Ms. Toulson: Impaq Computers, Inc. Section 8(a) Request for Reconsideration This letter and its enclosures is submitted as a request for reconsideration in response to the denial of Impaq Computers, Inc.'s ("Impaq") admission to the Section 8 (a) Program which was set forth in Ms. Judith A. Roussel's letter dated January 26, 1994 to me. In reading through Impaq's initial submission (which was prepared by the Minority Business Development Agency, U.S. Department of Commerce, Norfolk, Virginia), we noted some errors, which we have addressed in this request for reconsideration and in the revised Section 8(a) application form 1010 B which is enclosed at Tab 1. (Our submission of a corrected and updated form 1010 B should not be construed as a new application.) We have also included updated information about Impaq, given the amount of time that has elapsed since the initial submission. We believe that we have addressed sufficiently all of the points contained in Ms. Roussel's letter, and we respectfully urge that the denial of Impaq, s section 8 (a) application be reversed and that Section 8 (a) status be granted to Impaq. Set forth below are Impaq's responses to the fourteen points raised in Ms. Roussel's letter. The points on which further information was sought by Ms. Roussel are italicized. Point 1. Clear and convincing evidence that you have been subjected to chronic and substantial discriminatory experiences in the areas of education, employment, and business history, which have resulted in your ability to compete in the market place being impaired. As a minority, I sincerely appreciate and am very grateful for the opportunity to apply and now appeal for your consideration of 8(a) status. I realize that as a minority who has chosen to transfer from a sales force /management position to an executive corporate side, the 8(a) program is a needed opportunity. While the clich‚ of "good ole boys network" is used in country clubs and board rooms, minorities have traditionally not been able to access these areas. Emotionally I find this appalling and intellectually frustrating. Because of my Mediterranean complexion, I have had to combat the racism in the business world by intellectual means. I find my self-esteem constantly being battered and many times realize the by-product of racism to induce self-hatred and self-doubt. I came to the United States under a student visa to further my education. My initial problems were three fold: (1) 1 had a Mediterranean complexion, (2) 1 had a language barrier in speaking English; and (3), 1 was affiliated with a region of unrest. My language barriers as well as my obvious appearance of a person whose cultural background is not European has caused me difficulties throughout my life since I have been in America. Although I have overcome many obstacles in my pursuit of a better life for myself and my family I am reminded everyday in my business dealings and meetings as well as social activities that I have an accent or that I am a minority person so that I have to try harder. The obstacles that have been placed before me were ones that I would not have to endure were I not from another culture. I have been socially disadvantaged in many ways. I would like to cite just a few examples that stand out in my mind. While receiving my education at Georgetown College, I was confronted by some hostile students, who came to my dorm room to beat me because of my Iranian heritage. I felt my life was at risk the entire time I was there. The campus security was made aware of these threats. (These records from what I was told have been destroyed, and could not be obtained). This was my first brush with prejudice. As an 18 year old, I found myself confused, lonely, depressed, and full of self-hatred. I wished I could cleanse myself of the heritage I was born with so that I could fit in. This particular era was especially confusing. For 17 years I had been taught to have a great deal of respect and pride in myself, my family, and my beliefs. Within a matter of days I began to allow the hostility of those students to alter my self-esteem. When I worked for a company called American Business Systems, the head of the company called me a "dumb foreigner" and a "camel jockey". Because of my complaint and also a complaint made by Mr. Levin Custis, an African-American man, to the Equal Employment Opportunity Commission; American Business Systems was required to comply with laws to display EOE signs and published laws. I have tried to include this document for your review, but the files have been placed on microfiche and are available for review but not in hard copy. During the Summer of 1987 while I was out on the road selling, my wife received a phone call that I had been kidnapped and that if she called the police they would kill me. She finally located me and I came home immediately. We contacted the police who told us that very often people with Asian names had been singled out of the phone book and harassed. I have included this police report at Tab 2 for your review. While working for the Tandy Corporation (Radio Shack) I was repeatedly passed over for promotions. After everyone else got management positions I finally got one. I was given the management position at the Virginia Beach store and even though I made it the most well managed and profitable store for Tandy my superior told me I would never be a District Manager. People know when I speak to them on the phone what my heritage is. I have been told on the phone that "I don't want to deal with a foreigner" and many other derogatory remarks. Before my employment at CompuAdd, I wrote and submitted a sales manual to be copyrighted. I asked that I might share my ideas throughout the company. I sent my manual to CompuAdd locations throughout, in turn a corporate executive from another division changed my words reissued and distributed a diskette and gave no mention of my name. Both of these incidences left me with low self-esteem, feeling like I wasn't quite good enough and a failure. The corporate giants would gladly give me an award of excellence or use my profit-making ideas, but they would not allow me to have the higher title or position in the company, nor would they give me a chance to implement my ideas, or compensate me as others were compensated for the "extra mile" I'd go. (Please refer to the previously submitted records of my awards.) I am very proud to be an American, although I am constantly reminded that I was not born here in the United States, that I speak with an accent, that my skin is dark and that I embody every wrong thing that any person of another nationality has done. I know that I am statistically in a minority. My disadvantage within the area of education has not been my inability to better myself, but the impact it has made on my life to educate myself in a society that is openly hostile to persons of my heritage. Because of this I have had to try to always be better. I can not overcome the fact that I am a minority and do not f eel that I should be given so many obstacles to face because I am. When I decided to pursue my own company, my objective was to prove my individual qualities as a manager and as a business person as well as a citizen without being discriminated against. I felt business ownership would allow me to succeed and attain my personal goals of respect, success and economic growth. My first encounter in the business world was the unwillingness of the banking community to undertake a business loan without my seeking the guarantees of others. The other persons who assisted me were of basically equal education and management experience, but they were not minorities. The bank I dealt with published their record of lending to minorities in 1992 and it was very poor. I have included that document for your review at Tab 3. Since that time they have made great efforts to comply with the Community Reinvestment Act. I would say that my problems of discrimination are chronic as they have persisted since the day I arrived here and continue to this very day. I have the intelligence and desire to build a business where others can work free of the hostilities that I have encountered. I feel that given a chance I could be a good role model for other minority persons who suffer because of their language barriers, their skin color, their heritage or their country of origin. Point 2. Evidence that you are entitled to receive 100% of the current value of each share of stock you are entitled to resell to David Hultgren upon his request. The makeup of the shareholders of Impaq Computers, Inc. ("Impaq") has changed since the submission of the Section 8(a) Application in late March 1993. In November 1993, Mr. Ronald Hopkins' 450 shares (comprising 9% - of ownership) were redeemed by Impaq. The 450 shares were then purchased by Ms. Bettie Tucker. Copies of, Mr. Hopkin's cancelled Stock Certificate No.: 7 and Bettie Tucker's Stock Certificate No.: 8 (issued on November 29, 1993) are enclosed at Tabs 4 and 5, respectively. The current makeup of the shareholders, sole officer and sole director of Impaq are shown on the Corporate, Data Sheet, Virginia amended Annual Report and current Annual Report, and shareholder and director resolutions all of which are enclosed at Tab 6. In March 1994, the shareholders of Impaq executed a Stock Transfer Restriction Agreement (copy enclosed at Tab 7) which supersedes among other things, the Stock Purchase Agreement dated November 17, 1992 signed by Hashampour Hultgren and Hopkins which contained the language relating to Hashampour's agreement to sell the 700 shares mentioned in the Agreement to Hultgren. The Stock Transfer Restriction Agreement is a type which allows for a type of right of first refusal to Impaq and then to the other stockholders to purchase stock from a shareholder who wants to sell at a price determined at the end each fiscal year of Impaq. If the stock is not purchased by Impaq or the remaining shareholders, the shareholder desiring to sell is free to sell the stock to anyone, subject to the other limitations contained in the Agreement. The Agreement allows each shareholder to realize 100% of the value of his or her shares in the ___________________________ 1 Sitting by designation pursuant to Amended Notice and Order issued May 15, 1995. Chief Administrative Law Judge, U.S. Department of Labor. 2 There is no need to discuss in detail the issue of control since the first issue is dispositive. But, it must be noted that the applicant has literally jumped though hoops to satisfy the Agency objections in the first denial letter and the record shows that applicant has complied with every objection raised. Apparently nothing the applicant could have supplied, corporate change, stockholder realignment, signature card revision, or other technical modifications would have been sufficient to overcome the unstated Agency perception that Mr. Hashampour did not and does not have full control of his business. The ultimate decision on this issue was a vague finding of negative controlling factors and a refusal to permit or look at further explanations of the crabbed view originally taken of the submitted changes made on the signature cards. In the face of his claim of control, backed up by his 66% ownership control, the Agency finding is suspect.