American Armored Car, Ltd. And Prima Check Cashing, Inc. No. 4507 (September 13, 2002) Docket No. SIZ-2002-08-21-35 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. ) SIZE APPEALS OF: ) ) American Armored Car, Ltd. and ) Docket No. SIZ-2002-08-21-35 Prima Check Cashing, Inc. ) ) Appellants ) Decided: September 13, 2002 ) Expanded Economic Injury Disaster ) Loan ) Application Nos. 9M49-06985 & ) 9M49-06986 APPEARANCE Ilene Sacco, Esq., for Appellants DIGEST Two concerns are affiliated through common ownership when their principals are members of the same family and the principals of the affiliated businesses each own shares in the other's business and have mutual interests in numerous other businesses. DECISION BLAZSIK, Administrative Judge: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. Section 631 et seq., and 13 C.F.R. Parts 121 and 134. Issues Whether two concerns are affiliated through common ownership when their principals are members of the same family and the principals of the affiliated businesses each own shares in the other's business and have mutual interests in numerous other businesses. Facts On February 14, 2002, American Armored Car, Ltd. (American) and Prima Check Cashing, Inc. (Prima) (Appellants) applied to the Small Business Administration's (SBA) Disaster Assistance Office- -Area 1 (Area Office) in Niagara Falls, New York, for loans under the Expanded Economic Injury Disaster Loan (EIDL) program. The loan applications were for economic injuries in connection with the September 11, 2001, terrorist attacks and Federal actions taken between that date and October 22, 2001. [1] The Area Office accepted Appellants' loan applications for processing on March 1, 2002. The Area Office determined the applicable North American Industry Classification System (NAICS) code for Prima's primary industry is 522390 (Other Activities Related to Credit Intermediation), which has a corresponding average annual receipts size standard of $6 million, and the applicable NAICS code for American's primary industry is 561613 (Armored Car Services), which has a standard of $10.5 million. [2] The Area Office also determined the primary industry for Appellants' group is 522390, with a size standard of $6 million, plus a 25% increase because of Appellants' location in a labor surplus area. 13 C.F.R. Section 121.301(e). Thus, the applicable size standard is $7.5 million. On March 14, 2002, the Area Office denied Appellants' loan applications, because it found Appellants affiliated with each other through common ownership, including numerous other businesses, and their combined receipts exceed the applicable size standard. On May 31, 2002, Appellants requested the Area Office reconsider their applications and issue a formal size determination. Appellants submitted their Federal income tax returns for 1998-2000, their profit and loss statements for 2001, and other information for both concerns and their affiliates. Appellants' fiscal years end on December 31st. Appellants' SBA Form 355 and other information submitted show Dominick, Philip, and Michael Colasuonno each own 33.3% of both American and Prima, and have various interests in over twenty other companies. [3] On July 17, 2002, the Area Office issued its formal size determination. It found American and Prima affiliated of each other because of common ownership by three related principals. Next, the Area Office reaffirmed Appellants' primary activity is properly classified under NAICS code 522390. In so doing, it analyzed and compared the affiliates' annual revenues, number of employees, assets, and average annual expenditures as of December 31, 2000. [4] Thus, the Area Office concluded the correct NAICS code and size standard for Appellants and affiliates are NAICS code 522390 and $7.5 million, including the labor surplus adjustment. The Area Office rejected Appellants' assertions that the principals devote more time, effort, and resources to American than to Prima; that American has the higher rate of growth; and that American requested the higher EIDL loan. The Area Office then calculated Appellants' size and found Appellants' average annual receipts, when combined, exceed the applicable size standard. Thus, the Area Office concluded American and Prima are other than small. Appellants filed their appeal with this Office on August 21, 2002. In their appeal, Appellants merely reiterate their assertions made to the Area Office that each is a separate concern and not affiliated with the other; and, in the alternative, that the primary industry is NAICS code 561613, with its higher size standard. They did not submit supporting legal arguments or case precedent. Discussion Appellants filed their appeal within 30 days of receipt of the size determination, and thus the appeal is timely. 13 C.F.R. Section 134.304(a)(2). Appellants have the burden of proving, by a preponderance of the evidence, all the elements of their appeal. Specifically, they must prove the size determination is based on a clear error of fact and law. 13 C.F.R. Section 134.314; Size Appeal of General Maintenance Engineering, Inc., SBA No. SIZ- 4405, at 5 (2000). SBA regulations require a concern applying for a disaster loan under the Expanded EIDL program to qualify as a small business as of March 15, 2002, for applications denied for size status before that date. 67 Fed. Reg. 11874, 11880 (Mar. 15, 2002) (to be codified at 13 C.F.R. Sections 121.302(c), 123.300(b), and 123.601(b)). SBA's size standards define whether a business entity is small. 13 C.F.R. Section 121.101(a). Before applying the size standards, the SBA first must determine whether the concern has any affiliates. See 13 C.F.R. Section 121.103. SBA regulations provide that individuals with substantially identical business interests, such as family members, may be treated as one party, with such interests to be aggregated for purposes of determining affiliation. 13 C.F.R. Section 121.103(a)(3). There is a rebuttable presumption that family members have identical interests and must be treated as one person, unless the family members are estranged or not involved with each other's business transactions. Size Appeal of Golden Bear Arborists, Inc., SBA No. SIZ-1899, at 7 (1984). This is especially true in the case of immediate family members with common investments. See Size Appeal of Priority One Services, Inc., SBA No. SIZ-4479, at 7 (2002). Here, there has been no evidence presented to rebut the presumption. In fact, the evidence shows Appellants' three owners have other business interests together and, thus, are closely tied to one another through the numerous businesses they own. Accordingly, the Area Office correctly concluded that Appellants are affiliates of each other. Thus, the Administrative Judge must reject Appellants' assertion that each concern is separate and should be considered by itself. See Size Appeal of Rochester Hospitality Company, SBA No. SIZ-4495, at 4 (2002). For EIDL applicants, the regulations require the applicant not to exceed the size standard for the industry in which (1) it, combined with its affiliates, is primarily engaged; and (2) it alone is primarily engaged. 13 C.F.R. Section 121.301(a). It is undisputed that each Appellant is small under the size standard for its own primary industry. However, Appellants contest the Area Office's finding that the primary industry for the entire affiliate group is NAICS code 522390, with its $7.5 million adjusted size standard. Instead, Appellants assert the affiliate group's primary industry is NAICS code 561613, with its $13.125 million adjusted size standard. To determine the primary industry of a concern combined with its affiliates, SBA considers the distribution of receipts, employees and costs of doing business among the different industries in which business operations occurred for the most recently completed fiscal year. SBA may also consider other factors, such as the distribution of patents, contract awards, and assets. 13 C.F.R. Section 121.107; Size Appeal of Group O, Inc., SBA No. SIZ-4441 (2001). Here, the Area Office set out its calculation of all affiliates' annual revenues, number of employees, various types of assets, and their expenditures. The Area Office explained why it used data from 2000, rather than from 2001 (see, supra, note 4), and Appellants have neither contested the use of this 2000 data nor any of the specific items of the data. This data, which the Administrative Judge accepts as correct, clearly bears out the Area Office's conclusion that only in number of employees does American's NAICS code 561613, rather than Prima's NAICS code 522390, prevail. In all other factors, Prima's NAICS code 522390, prevails. The Area Office also correctly rejected Appellants' assertions American took more of the principals' time, effort, and resources; has the higher rate of growth; and requested the higher loan amount. See Group O, supra. Accordingly, the Area Office correctly determined the primary industry of Appellants' affiliate group to be NAICS code 522390, with a $7.5 million adjusted size standard. The regulations further require the Area Office to average the affiliates' annual receipts over its last three completed fiscal years. 13 C.F.R. Section 121.104(b). Here, the correct period of measurement is from 1999 to 2001. "Receipts" means "total income" plus "cost of goods sold" as these terms are defined or reported on Federal income tax returns. 13 C.F.R. Section 121.104(a)(1). The record demonstrates the Area Office correctly determined that Appellants' combined average annual receipts for the applicable 1999-2001 measuring period exceed the $7.5 million size standard. Therefore, Appellants have not met their burden of proving the size determination is based on a clear error of fact or law. Conclusion For the above reasons, the Area Office's size determination is AFFIRMED, and the appeal is DENIED. This is the final decision of the Small Business Administration. See 13 C.F.R. Section 134.316(b). GLORIA E. BLAZSIK Administrative Judge _________________________ [1] See 13 C.F.R. Subpart G; 67 Fed. Reg. 11874, 11880 (Mar. 15, 2002) (to be codified at 13 C.F.R. Sections 121.302(c), 123.300(b), and 123.601(b)); SBA Disaster Declaration #9M49 (Sept. 18, 2001). [2] Effective February 22, 2002, the SBA raised the size standard for NAICS codes 522390 and 561613 to $6 million and 10.5 million, respectively. 67 Fed. Reg. 3041, 3051 & 3053 (Jan. 23, 2002). [3] The record shows these individuals are brothers and, thus, members of an immediate family. [4] The Area Office attached its analysis as three exhibits to the size determination. The Area Office explained that it used 2000 data rather than 2001, the most recent fiscal year, because 2000 was the last year consistent financial information was available for all affiliates. Posted: October, 2002