Carolina Welding, Inc., No. MSB-401 (May 22, 1992) Docket No. MSBT-91-12-13-30 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. 20416 IN THE MATTER OF: ) ) Docket No. MSBT-91-12-13-30 Carolina Welding, Inc. ) APPEARANCES For the Petitioner: For the Agency: Mr. Allen J. Locklear Michael K. Wyatt, Esq. President General Counsel Carolina Welding, Inc. David A. Fishman, Esq. 205 Century Blvd. Agency Representative Bartow, FL 33830 Small Business Administration 409 Third Street, SW Washington, DC 20416 DIGEST The regulations published at 54 Federal Register 34692, et seq., on August 21, 1989 and codified at 13 CFR Part 124 must be used to evaluate all questions arising on or after August 21, 1989 concerning participation in and termination, suspension and grad- uation from the Agency's 8(a) program. 13 CFR 124.1(a)(2)(i). In a Section 8(a) program termination action, initiated in accordance with the provisions of 124.209 of the regulations, the Agency has the burden of proving by preponderant evidence that there is "good cause" for the Petitioner's program termination. "Good cause" for a participant's program termination may be based upon, among other things: 1) a demonstrated pattern by the pro- gram participant of failing to make required submissions or re- sponses to the Agency in a timely manner, and 2) cessation of the program participant's business operations. Evidence of the program participant's having continually failed to keep the Agency informed of its current address will eliminate the participant's ability to use as a defense the fact that it was not fully advised by the Agency. FINAL DECISION May 22, 1992 USHER, 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 7(j) of the Small Business Act of 1958, as amended; 15 U.S.C. 636(j)), 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 Is there a reasonable factual basis and an evidential rationale for the conclusion of the Associate Administrator 2/ in the re- cord that was before her at the time she made her determination; and is it clear from the record and from the determination itself that the AA/MSB&COD did not err in interpreting or applying the law and regulations to the facts found in the record? Regulations The Agency's regulations found at 124.209 provide, insofar as is pertinent here: (a) General. Participation of a 8(a) business concern in the 8(a) program may be terminated [2/] by SBA prior to the expiration of the concern's Program Term for good cause. Examples of good cause include, but are not limited to, the following: * * * * * * * (6) A demonstrated pattern of failing to make required submissions or responses to the [Agency] in a timely manner, including: (i) Failure by the concern to provide SBA with required quarterly or annual financial statements within 90 days of the close of the reporting period, or required audited financial statements within 180 days of the close of the reporting period. Failure to provide SBA with requested tax returns, reports, or other available data within 30 days of the date of request. * * * * * * * (7) Cessation of business operations by the concern. Further, the regulations at 124.209(b) require written notifi- cation of the Program Participant that termination of its status is intended, and the Agency must set forth in the notification letter its findings, based on the facts and in accordance with law and regulations, for every material issue relating to the grounds upon which [the] termination would be based, with specific reasons for each finding. The Participant is allowed 45 days from the date of service of the letter of notification to submit written information that would eliminate the ground(s) for termination or would explain why the proposed ground(s) should not justify termination. The regulations further provide that the Agency shall reconsider the proposed termination after the 45-day response period and then notify the Participant that the grounds for the proposed termination have been eliminated or that, despite the information (if any) that has been provided, some or all of the grounds for termination remain. According to the regulations, a second 45-day delay shall be granted by the Director of the Division of Program Certification and Eligibility, "where appropriate," and a recommendation of the Participant's termination is then submitted to the Associate Administrator by the Director. Facts and Argument The Petitioner, Carolina Welding, Inc., 3/ is a Native-American- owned business that was admitted into the Agency's Section 8(a) program on January 23, 1985. Initially organized and operated under the laws of the State of North Carolina and having its place of business in Lumberton, North Carolina, it moved its operations to Lakeland, Florida sometime thereafter and is now located in Bartow, Florida. The Agency's evidence indicates that the Petitioner has failed and refused to submit the required financial statements and other information, or to respond at all to the Agency's inquiries since early in 1986. 4/ No correspondence of any kind appears to have been received from the Petitioner from early 1986 until the receipt of the Petitioner's letter of August 13, 1991, seeking assistance from the Atlanta regional representative of the Agency's Office of Minority Small Business and Capital Ownership Development. Correspondence from the Agency, consisting of several letters addressed to the Petitioner's last known address in Lumberton, North Carolina, was returned by the postal author- ities as undeliverable, marked "moved, left no address" or "moved, forwarding order expired." The Agency's Counsel argues that inasmuch as it has been deter- mined that "[t]he Petitioner no longer has a phone listing in the area and, prior to August 31, 1991, failed to notify SBA of an address change...[t]herefore, SBA rationally determined that with no forwarding address and with no forwarding phone listing the business has ceased to exist." The record reveals that the Agency attempted to notify the Petitioner of its default and of the intention of the Agency to initiate proceedings to terminate its 8(a) status because of the default. In a letter dated March 21, 1990, the Agency's Regional Chief of Program Certification and Eligibility in Atlanta advised the Petitioner, in pertinent part, as follows: The purpose of this letter is to notify you that the U.S. Small Business Administration intends to terminate the 8(a) program participation of Carolina Welding.... This action is being proposed in accordance with the provisions of the...Regulations, 13 CFR 124.209...which provides [sic] in part that "participation of an 8(a) business concern in the 8(a) program may be terminated by SBA prior to the expiration of the concern's Program Term for good cause." The reasons for this proposed termination action are as follows: 1. A demonstrated pattern of failing to make required submissions or responses to the Administration in a timely manner, including: a) Failure by the concern to provide SBA with required quarterly or annual financial statements within 90 days of the close of the reporting period, or required audited financial statements within 180 days of the close of the reporting period. b) Failure to provide SBA with requested tax returns, reports, or other available data within 30 days of the date of request. c) Failure to respond to requests for information relating to the 8(a) program from SBA within the time frames provided for the requests. 2. Cessation of business operations by the concern. In accordance with SBA regulations, Carolina Welding... shall have 45 days from the date of mailing of this letter of notification to submit, in writing, information which will eliminate the grounds for the proposed termination or explain why the proposed grounds should not justify termination. During this 45-day period, the firm may request a meeting with SBA to discuss the proposed termination action. However, any such meeting will not substitute for a written response. After the close of the 45-day response period, SBA will consider the proposed termination, including any information which the firm submits. At that time, SBA will notify Carolina Welding...that the grounds for the proposed action have been eliminated, or that, de- spite information that may have been provided, some or all of the grounds for termination continue to exist. If SBA determines that grounds for the proposed termination continue to exist, the firm's 8(a) program participation will be terminated. The firm will be afforded additional administrative rights, including the right to appeal to SBA's Office of Hearings and Appeals the decision to terminate the firm's 8(a) program participation. The regulations governing termination and hearing proceedings are found in the Code of Federal [Regulations at] 13 CFR 124.209 and 124.210. A copy of these regulations is attached. Failure to provide a written response within 45 days from the mailing of this letter will cause SBA to continue termination proceedings. Information received after the 45- day period may not be considered in processing this action, but will be forwarded for review at the next level. If there are any questions regarding this letter of notification, please feel free to contact the undersigned at (404) 347-0177. This letter was properly addressed and mailed to the Petitioner by certified mail, with a return receipt requested, at the only address the Agency had been given by the Petitioner. Neverthe- less, it was returned by the Postal authorities as undeliverable because the addressee had moved and the "forwarding order [had] expired." The Agency received no response to this letter, and no contact was made with the Agency by the Petitioner. Thereafter, the Regional Chief of Program Certification and Eligibility rec- ommended to the Director of Program Certification and Eligibility that the Petitioner's program participation be terminated, and, on or about July 20, 1990, the latter sent to the Petitioner its second notification that the termination of its program par- ticipation was being processed. The Agency's record reveals that absolutely nothing occurred in this matter from approximately July 20, 1990 until August 19, 1991 when a letter from the Petitioner was received in the Agency's Atlanta Regional Office. In that letter, dated August 13, 1991, the Petitioner indicates that its business is located in Lakeland, Florida and requests that its records be transferred to the Agency's Coral Gables, Florida office. Mention is made by the Petitioner of having been informed of the termination proceedings, and there is a reference to a letter from the Agency's Charlotte, North Carolina office of "the 24th of July" (no year is stated) informing the Petitioner that its records had been transferred to the Agency's Atlanta Regional Office in connection with "termination." The Petitioner's owner states that "we don't want to be terminated." Further, the record reveals a second letter from the Petitioner, also dated August 13, 1991, addressed to the Agency's Charlotte, North Carolina office. In that letter, the Petitioner requests that its file be "recover[ed]...from the MSB and COD office in Atlanta, Georgia [because it is] taking issue with the termination proceeding for non-compliance [sic]." The letter continues: In response to your letter dated July 24, 1991, [5/] indicating the reasons why my file was transferred to Mr. Washington [6/] is as follows [sic]: 1. All my company's financial records through the end of the year 1985 were sent to the SBA. After that all records were destroyed as a result of a break-in [sic] of our office. 2. When I moved to Florida, I left a forwarding address, and to-date [sic] am still receiving mail at this address. So in response to your statement that efforts to communicate via "Certified Mail-Return Receipt Requested" have been non-responsive [sic], is simply not true [sic]. I have no idea why these letters, notices, etc., have not reached me. You must have an incorrect address. The record reveals an undated copy of a letter from the Agency's Director of Program Certification and Eligibility, Darryl K. Hairston, to the Petitioner. That letter refers the Petitioner to the Agency's March 21, 1990 letter "notify[ing] you of its intent to terminate [the Petitioner's] participation in the 8(a) program for specific violations of Chapter 13 of the Code of Federal Regulations..., Part 124." Referenced also is the "July 20, 1990...second letter from the Agency regarding [the Agency's] intent to terminate [the Petitioner's] participation in the 8(a) program." Hairston informed the Petitioner of the specific violations that were cited in the notification letters, dated March 21 and July 20, 1990, and stated that he was recommending to the Associate Administrator that the Petitioner's 8(a) program participation be terminated. He advised that the Associate Administrator would inform the Petitioner of her determination in writing. The record contains a copy of Hairston's recommendation to Judith Watts, the Associate Administrator, and a copy of Watts' termination letter to the Petitioner, dated November 8, 1991. Watts informed the Petitioner of its right to appeal her determination to this Office. In a letter dated November 14, 1991, Allen J. Locklear, President of Carolina Welding, Inc., protested to Watts, citing the alleged fact that the Agency's letters of March 21 and July 20, 1990 were not received by the Petitioner in spite of the fact that a for- warding address had been on file at the Post Office in Lumberton, North Carolina, and that the firm had been receiving other for- warded mail. The only reason given for the asserted violations of 124.209(a)(6)(i) of the regulations by the Petitioner was: "[W]e were not getting proper information from the Charlotte office and due to circumstance [sic] failed to provide the required data...." With regard to the asserted violation of 124.209(a)(7), the Petitioner's President stated: "[W]e are a viable business in Florida and plan to continue operations in this state. The poor market and economy of North Carolina led to our move to Florida." By letter of December 12, 1991, the Petitioner appealed the determination of the Associate Administrator. No evidence was presented, but the Petitioner's President repeated the arguments made to the Associate Administrator on November 14, 1991, viz., that the Agency's Charlotte office rendered no assistance "in acquiring projects" for his firm and he was "unable to pay the necessary cost for reviewed financial statements and the other pertinent information that needed to be forwarded." He admits that "for a period of time there were no business operations by Carolina Welding," but that was because Carolina Welding "did not receive any assistance from the SBA office in Charlotte." Discussion The record clearly establishes a demonstrated pattern of viola- tions of the regulations by the Petitioner, and those violations are sufficiently serious to warrant termination of the Peti- tioner's Section 8(a) program participation. There is, in fact, no denial by the Petitioner's President of the accusations made by the Agency. The Petitioner did not make the necessary filings as required by the regulations, and it did not keep the Agency advised of its current address. There was a period of four years or more during which no contact whatsoever was made by the Petitioner. The Petitioner's assertions regarding a failure of assistance by the Agency's Charlotte, North Carolina office are unsubstantiated. No claim is made by the Petitioner that specific advice was sought from the Agency's representatives concerning what was to be done if formal quarterly or annual statements could not be filed because of financial difficulties. Such conduct as was demonstrated by the Petitioner is irresponsible and remains unexplained on the record. The Agency has proved that the Petitioner has repeatedly violated 124.209(a)(6)(i) and 124.209(7) of the regulations by a pattern of conduct that indicates irresponsibility on the Peti- tioner's part. Those violations, and that demonstration of irresponsibility by its conduct, constitute good cause for the termination of the Petitioner's 8(a) program participation, as provided for by the regulation at 124.209(a). Further, the Agency has shown that it has fully complied with the provisions of 124.209(b) of the regulations; thus, in accordance with the provisions of the regulations at 124.209(c), the Petitioner is no longer eligible to receive any Section 8(a) program assistance, but is obligated to complete previously awarded 8(a) subcontracts. Conclusion On the basis of these undisputed facts, the provisions of the Act and the regulations clearly mandate the Acting Associate Administrator's termination of the Petitioner's Section 8(a) participation; her action in that regard was rationally based on the record that was before her at the time and IS NOT ARBITRARY, CAPRICIOUS OR CONTRARY TO THE LAW. This decision is the final Agency decision in the matter of the termination of the Section 8(a) Program participation of Carolina Welding, Inc., and it is binding upon the parties, including the Agency and all those within the employ of the Agency. See the regulation at 124.211(i). _____________________________ Benjamin G. Usher Administrative Law Judge __________________________ 1/ The Associate Administrator for the Agency's Office of Minority Small Business and Capital Ownership Development may be referred to herein as the "Associate Administrator" or the "AA/MSB&COD," and the use of either term will designate the Acting Associate Administrator, where applicable. 2/"Termination" is defined in 124.100 as "the permanent cessation of 8(a) Program Participation prior to the expiration of the concern's Program Term for good cause pursuant to 124.209." 3/ Initially, the firm was known as "Carolina Welding, Construction & Maintenance Co." Its letterhead and the signature line on its correspondence now read: "Carolina Welding, Inc." No explanation is given for the change. 4/ The Agency's Counsel asserts that no statements have been submitted "since 1985," but that is not correct. The evidence reveals a penciled response to the Agency's letter of January 7, 1986 and a typed financial statement dated March 3, 1986 and received by the Agency on March 7, 1986. 5/ The record before me contains no copy of a letter of July 24, 1991. 6/ Isaiah Washington was the Agency's Regional Administrator for Minority Small Business and Capital Ownership Development in Atlanta in 1991.