Escoe/Bliss Communication, No. SDBA-126 (February 17, 2000) Docket No. SDBA-99-09-03-17 REDACTED COPY FOR PUBLIC RELEASE UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. ) IN THE MATTER OF: ) ) Docket No. SDBA-99-09-03-17 Escoe/Bliss Communication ) ) Decided: February 17, 2000 Petitioner ) ) APPEARANCES Adrienne Escoe, President Escoe/Bliss Communication David P. Babkow, Esq. For the Small Business Administration DIGEST An individual whose personal financial statement reflects a net worth in excess of $750,000, excluding ownership interest in the applicant firm and equity in the primary personal residence, is not economically disadvantaged. INITIAL DECISION HOLLEMAN, Administrative Judge: Jurisdiction This appeal petition is decided under the Small Business Act of 1958, 15 U.S.C. Sections 631 et seq., and 13 C.F.R. Parts 124 and 134 (1999). Issues Whether an individual whose personal financial statement reflects a net worth in excess of $750,000, excluding ownership interest in the applicant firm and equity in the primary personal residence, is economically disadvantaged. A. Procedural Background On April 29, 1999, Escoe/Bliss Communications (Petitioner) applied for certification as a Small Disadvantaged Business (SDB) with the Small Business Administration (SBA or Agency). 13 C.F.R. Section 134.1008(a)(1999). On July 20, 1999, the Acting Associate Administrator for Small Disadvantaged Business Certification and Eligibility (AA/SDBCE) denied certification. Petitioner filed an Appeal Petition with this Office on September 3, 1999. Petitioner sought to submit new evidence with its Petition. On September 7, 1999, the Administrative Judge issued a Notice and Deficiency Order ordering Petitioner to correct specific deficiencies in its Appeal Petition by September 22nd. On September 17, 1999, Petitioner complied with the Order. On October 19, 1999, also in compliance with the Order, SBA timely filed the Administrative Record (AR), together with an Answer to the Appeal Petition. SBA withheld portions of two documents from the AR, claiming the deliberative process and attorney-client privileges. Petitioner did not object to SBA's claims of privilege. On November 9, 1999, the Administrative Judge approved SBA's claims of privilege and denied Petitioner's request that he consider new evidence on appeal. B. The SDB Application Petitioner is a California corporation founded in 1994. Its primary Standard Industrial Classification code is 8748, Business Consulting Services, Not Elsewhere Classified, with a corresponding $5 million average annual receipts size standard. Dr. Adrienne Escoe, the individual on whom Petitioner based its claim of eligibility, is the firm's founder, President, and sole shareholder. Dr. Escoe's narrative statement describing her social disadvantage does not address disadvantage in her education. Tabs D, G. She does assert she was denied employment opportunities because she is a woman. Specifically, she asserts she experienced job discrimination while working at Hughes Aircraft from 1987 to 1994. Dr. Escoe further asserts Petitioner's business has suffered because a woman owns and runs the firm: both Federal agencies and private firms failed to select Petitioner as a prime contractor for that reason. Dr. Escoe provides the names and some addresses or telephone numbers for a number of individuals who, she says, can confirm her account. Dr. Escoe's personal financial statement lists her personal net worth as $XXXX. It does not list her ownership interest in Petitioner, but does include her personal residence, with a value of $XXXX and a mortgage balance of $XXXX. Tab J. C. The AA/SDBCE's Determination The AA/SDBCE denied Petitioner's application because she determined Dr. Escoe was neither socially nor economically disadvantaged. First, Petitioner presented no evidence Dr. Escoe had experienced disadvantage in her education. Second, Petitioner's claims concerning Dr. Escoe's employment at Hughes Aircraft did not show how any disparate treatment affected her entry into the business world. To the contrary, the fact that she achieved a management position showed Hughes did not discriminate against her. Third, Petitioner's business history did not show discrimination, because its revenue grew by over 300% in the past year. Finally, the AA/SDBCE concluded Dr. Escoe was not economically disadvantaged because her net worth exceeded $750,000. D. The Appeal Petition On appeal, Petitioner asserts for the first time that Dr. Escoe was educationally disadvantaged, because American society discouraged her, through educational bias and a lack of role models, from seeking a business education; and that her choice of a teaching career delayed by 18 years her entry into the business world. Petitioner also asserts it demonstrated Dr. Escoe's social disadvantage because she encountered cultural bias as a woman, specifically the discrimination Dr. Escoe suffered while working at Hughes. Petitioner asserts Petitioner's revenues increased 300%, because of Dr. Escoe's hard work and the income generated by her personal savings. Petitioner asserts the AA/SDBCE discriminated against her because she financed her business with savings instead of credit. Petitioner asserts Dr. Escoe incorrectly calculated her net worth on the application, because she mistakenly stated her business equity was $0. Instead, she should have calculated her net worth based on an equation that includes her business equity, adjusting her net worth to $XXXX. Further, because her net worth includes contributions from her former husband made during their marriage, her real net worth is $XXXX. Petitioner does not include with the Appeal Petition either the calculations Dr. Escoe used to obtain these figures or a revised personal financial statement. E. The Agency Response SBA asserts it has established the AA/SDBCE reasonably concluded Petitioner did not establish Dr. Escoe was socially disadvantaged. First, Petitioner failed to address Dr. Escoe's education. Second, it asserts Petitioner's evidence, that Dr. Escoe suffered discrimination in employment and her business history, was inadequate, inconsistent, and conclusory. Petitioner failed to document any of the alleged instances of discrimination with any statements, sworn or unsworn from the individuals whose names it provided. Instead, Petitioner submitted memoranda and performance evaluations which praised Dr. Escoe's work, and thus evidences no discrimination. In addition, Dr. Escoe admits Hughes promoted her at the time it originally had promised. Further, Petitioner's business history has shown no discriminatory impact because its revenues have increased substantially. SBA further asserts the AA/SDBCE correctly concluded Dr. Escoe was not economically disadvantaged because her net worth exceeded the regulation's upper limit. Finally, Petitioner's assertion, that her net worth should be calculated differently, is new evidence the Administrative Judge cannot consider. [1] II. DISCUSSION Petitioner filed its Appeal Petition within 45 days after SBA served its denial of the SDB application and, thus, the appeal is timely. 13 C.F.R. Sections 134.202(a), 134.204(e)(2). A firm applying for SDB certification must demonstrate it meets the regulatory eligibility criteria (13 C.F.R. Section 124.1002(b)), among others, that one or more socially and economically disadvantaged individuals own (13 C.F.R. Section 124.1002(b)(2)) and control (13 C.F.R. Section 124.1002(b)(e)) the firm. In determining whether a firm meets these ownership, control, and social and economic disadvantage criteria, the AA/SDBCE applies the same criteria long used for the 8(a) program. 13 C.F.R. Section 124.1002(a); Matter of Trisha Koch & Assocs., SBA No. SDBA-113 at 4 (1999). The Agency must examine the relevant data and articulate a satisfactory explanation for its action, including a "rational connection between the facts found and the choice made." Matter of IRECOR, Inc., No. SDBA-104, at 5 (1999) (citing Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (citing Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). In considering an Appeal Petition, OHA reviews the AA/SDBCE's determination. OHA's standard of review is whether the record demonstrates the determination was "arbitrary, capricious, or contrary to law." 13 C.F.R. Section 124.1008(f)(3)(ii). The scope of review under the "arbitrary and capricious" standard is narrow, and OHA cannot substitute its judgment for that of the Agency. Matter of Aero CNC, Inc., No. 106 at 7 (1999). OHA must consider whether the AA/SDBCE's determination was based on a consideration of the relevant factors and whether there has been a clear error of judgment. IRECOR, supra at 5 (citing Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285 (1974)). In order to qualify as an economically disadvantaged individual, the net worth of the individual on whom the firm bases its eligibility claim must be less than $750,000, excluding ownership interest in the applicant firm and equity in the primary personal residence. 13 C.F.R. Sections 124.1002(c), 124.104(c)(2). Dr. Escoe's personal financial statement lists her net worth as $XXXX, including cash, securities, an IRA, and personal property. Tab J. The Administrative Judge emphasizes, however, that Dr. Escoe's personal financial statement does not list her interest in Petitioner, even though Petitioner's March 31, 1999 balance sheet lists shareholders' equity as $XXXX. Tab K. Dr. Escoe also does not include Petitioner on the list of firms in which she holds stock. Therefore, the AA/SDBCE reasonably did not subtract Dr. Escoe's equity in Petitioner when calculating her net worth. Further, Petitioner admits in its Appeal Petition that Dr. Escoe estimated her equity in Petitioner as $0 in her personal financial statement. Because the AA/SDBCE in any event cannot consider her business equity in computing her net worth, this initial listing was correct. Petitioner does not explain how the AA/SDBCE should have calculated her net worth, or how the initial calculation was in error; it merely asserts a new figure. Moreover, Dr. Escoe's own personal financial statement constitutes an admission that she exceeds the personal net worth requirements of the regulation. [2] Specifically, the statement lists Dr. Escoe's personal residence, with a value of $XXXX and a mortgage balance of $XXXX. After subtracting the resulting home equity of $XXXX the Administrative Judge finds Dr. Escoe had a personal net worth of $XXXX. Petitioner also erroneously asserts SBA penalized it because Dr. Escoe chose to finance her business with savings, rather than credit. Dr. Escoe's method of financing Petitioner would not be reflected in her net worth calculation because, as discussed above, the regulations exclude equity in the applicant firm. 13 C.F.R. Sections 124.104(c)(2); 124.1002(c). It also is irrelevant that Ms. Escoe derives some of her assets from transfers from her ex-husband; the AA/SDBCE could not exclude those assets. The only exclusion of assets from the net worth calculation authorized by the regulations is equity in the individual's home and the applicant firm. Id. Thus, the AA/SDBCE's finding that she was not economically disadvantaged was not arbitrary or capricious. [3] Accordingly, the Administrative Judge concludes SBA's determination was not arbitrary, capricious or contrary to law. Instead, SBA based it on the uncontroverted facts and the specific regulatory requirements. Because this issue is dispositive, the Administrative Judge need not consider the parties' other arguments. [4] Aero CNC, No. 106 at 8. When the AA/SDBCE denies SDB certification on two or more independent bases, and at least one is grounded in law or regulation and is factually supported by the record evidence, the Administrative Judge will affirm the determination. Matter of ID Systems, Inc., No. SDBA-114 at 7 (1999). III. CONCLUSION Based on the Administrative Judge's conclusion that the SBA's determination was not arbitrary, capricious or contrary to law, he AFFIRMS the determination, and DENIES the Appeal Petition. This is the initial decision of the SBA. Absent a request for review, this decision will become the SBA's final decision 30 days after the date of this decision. 13 C.F.R. Sections 134.227(b), 134.228(a) (1999). _____________________________ CHRISTOPHER HOLLEMAN Administrative Judge _________________________ [1] As discussed above, the Administrative Judge's November 9th Order excluded Petitioner's new evidence. [2] Even if the Administrative Judge had not excluded Petitioner's proffered evidence that Dr. Escoe's net worth is only $XXXX, or $XXXX, the proffer merely is a bare assertion. Petitioner offers no calculations, analysis, or documentary evidence to support its assertion that it initially miscalculated Dr. Escoe's net worth. [3] Petitioner's admission that Dr. Escoe's financial personal statement did not include her equity interest in Petitioner confirms that the AA/SDBCE correctly analyzed Dr. Escoe's net worth, and was not required to request to further information from Petitioner. Cf. Matter of G. Davidson Co., Inc., No. MSB-446 at 19 (1994). [4] The Administrative Judge thus does not reach the question of whether the AA/SDBCE was arbitrary and capricious in concluding Dr. Escoe was not socially disadvantaged. Posted: February, 2000