Alamo Trucking, Inc., No. MSB-509 (June 9, 1995) Docket No. MSBE-94-7-25-33 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. ______________________________ ) IN THE MATTER OF: ) ) Docket No. MSBE-94-7-25-33 Alamo Trucking, Inc. ) ______________________________) APPEARANCES For the Petitioner: For the Agency: Kita Schuehle John T. Spotila, Esq. President General Counsel Alamo Trucking, Inc. Audrey H. Liebross Rural Route 9, Box 902 Agency Representative San Antonio, TX 78252 Small Business Administration 409 Third Street, SW Washington, DC 20416 DIGEST Reliance by the Agency on a common industry practice in order to evaluate potential discrimination will not be found to be arbitrary and capricious unless the Petitioner can specifically show that the actions within the industry are not common industry practice and are discriminatory. A claim of social disadvantage based upon gender requires the evidence submitted to be clear and convincing in order to find the applicant eligible for admission into the 8(a) Program. FINAL DECISION June 9, 1995 ARKOW, Administrative Law Judge: Petitioner is appealing a decision by the Agency, U.S. Small Business Administration (SBA), denying it entry into the 8(a) Program[1] because the individual who owns and controls the firm has not satisfactorily established she is socially disadvantaged. Petitioner claims social disadvantage based on gender discrimination. I agree with the decision of the Agency. Jurisdiction Jurisdiction on appeal is properly based on 15 U.S.C. Section 637(a)(9) and 13 C.F.R. Parts 124 and 134 and was timely filed under 13 C.F.R. Sections 124.210(b) and 134.11(a)(7). Issues Whether Petitioner, which claims to be a socially disadvan- taged firm by reason of the gender of its President, established its eligibility for admission to the 8(a) Program by clear and convincing evidence. 13 C.F.R. Section 124.105(c). Whether the proposed action of the Small Business Administration denying Petitioner entry into the 8(a) Program is arbitrary, capricious, or contrary to law. 15 U.S.C. Section 637(A)(9)(C), 13 C.F.R. Section 124.210(h)(1). Facts In October, 1993, Alamo Trucking, Inc. (Petitioner) applied for admission into the 8(a) Program. The basis for its applica- tion is that its founder and President, Kita Schuehle, who owns and controls the firm, is socially disadvantaged due to gender discrimination. The Agency initially denied the application on April 13, 1994. The Agency denied Petitioner's request for reconsideration on June 20, 1994. The denial of eligibility on reconsideration is the reason for this appeal. The Agency denied the reconsideration request because Petitioner did not provide clear and convincing evidence to conclude that its ability to compete in the marketplace was impaired due to gender related discriminatory practices directed against Ms. Kita Schuehle. The Agency based its conclusion on the following: (1) Kita Schuehle did not show she was denied an opportunity to fulfill her educational pursuits because of her gender;[2] (2) she did not show that her difficulty in obtaining financing and bonding were the result of gender discrimination rather than the common business practice requiring the guaranty of the spouse of an applicant when seeking credit; and (3) she did not show that Petitioner's difficulty in obtaining business in its market area, compared to its competitors, was the result of gender discrimination rather than difficulties experienced by most firms that are relatively new to the marketplace. In its appeal, Petitioner contends, in pertinent part, the following. First, males were not subject to the same discriminatory treatment as females. Petitioner states that it was denied credit and bonding on favorable terms because its President is a woman. In support of that contention, Petitioner points out that Ms. Schuehle's husband was required to guaranty her loans with Frost National Bank because she was a woman. Yet her husband obtained loans with the same bank and she was not required to guaranty his loans. Petitioner asserts, that the Agency's conclusion that this is a common industry practice has no basis in the record, is arbitrary, and thus should not be considered in this appeal. Second, Petitioner asserts that the Agency, on one hand in the initial denial letter, advised the Petitioner that a non- disadvantaged individual who provides critical financial or bonding support, may be found to control or have the power to control the firm and thus, be ineligible for Program participa- tion. Then, on the other hand in the denial of the reconsidera- tion request, the Agency advised Petitioner the guaranty requirement is a common industry practice and not critical financial or bonding support. Petitioner claims this is a "heads I win, tails you lose" situation and, therefore, arbitrary and capricious. Third, Petitioner takes issue with the Agency's conclusion that Petitioner was unable to obtain a larger share of the market area because it was a relatively new business and was subject to sharp competitive business practices rather than gender discrimination. It also contends that the Agency's consideration of common competitive practices lacks support in the record and is arbitrary and capricious. Discussion To be accepted into the 8(a) Program upon a claim of gender discrimination, Petitioner must establish, by clear and convincing evidence, that its President, who controls and manages Alamo, is socially disadvantaged. 13 C.F.R. Section 124.105(c)(1). To be socially disadvantaged, Petitioner must demonstrate Ms. Schuehle personally suffered social disadvantage rooted in treatment experienced in American society, not merely claim membership in a non-designated group which could be considered socially disadvantaged. 13 C.F.R. Sections 124.105(c)(1)(ii) and (iii). Further, the social disadvantage must be chronic and substantial, not fleeting or insignificant. 13 C.F.R. Section 124.105(c)(1)(iv). In addition, there must be a nexus between a claim of social disadvantage and the negative impact it has on Petitioner's entry or advancement in the business world. This nexus may be shown by any relevant evidence, but the SBA particularly emphasizes evidence of education, employment, and business history. 13 C.F.R. Section 124.105(c)(1)(v). In this case, the only relevant evidence in support of social disadvantage is business history. Petitioner does not claim Ms. Schuehle was deprived of educational opportunities that prevented her from entering or advancing in the business world.[3] Nor does Petitioner cite specific instances of discrimination in hiring or employment. In fact, Ms. Schuehle's resume shows continuous employment from 1972 to the time of her application in 1993, first as a biology teacher from 1972 to 1990, then as a materials supplier in the construction industry from 1990 until she established the Petitioner firm in 1991. In considering business history, the pertinent regulations require the SBA to consider, as evidence of individual social disadvantage, unequal access to credit or capital; acquisition of credit or capital under unfavorable circumstances; discrimination by potential clients; and other similar factors affecting a businesses success. 13 C.F.R. Section 124.105(c)(v)(C). Petitioner claims the SBA, in evaluating these factors, should not be allowed to consider industry practices and common competitive practices when there is no evidence in the record of such practices. I disagree. An agency, in rendering a decision, must state on the record what it considered in reaching its decision. It cannot merely rely on data or other public information it has in its possession. Both are essential to allow a meaningful review of an agency's action for arbitrariness and capriciousness under the Administrative Procedure Act (See 5 U.S.C. Section 706). U.S. Lines v. Federal Maritime Commission, 584 F.2d 519 (D.C. Cir. 1978). An agency may, however, rely on data in its files or public information when it discloses what it relied upon or what is involved in sufficient detail to permit "meaningful adversarial comment and judicial review." 584 F.2d at 534, 535. I am entitled to rely upon the expertise of an agency official and am required to give it proper weight as long as I do not rely upon it blindly. 584 F.2d at 534, 535. Here, Petitioner contests the Agency's use of its expertise in reaching a decision. The Agency relies on its expertise in the field of business in reaching its conclusions and states them in sufficient detail to allow Petitioner "meaningful adversarial comment" and to allow me to complete a meaningful appellate review. My examination of the record shows there is ample evidence, in Petitioner's submissions to the Agency, of the competitive practices of its competitors. This detailed submission by the Petitioner allows me to evaluate whether the practices are in fact simply competitive or whether they evidence gender based discrimination. I cannot conclude, however, that the Agency's reliance on what it called common competitive practices was arbitrary or capricious. Similarly, the Agency's conclusion that it is common industry practice to require a spouse to serve as a guarantor, particularly in a community property state, was not arbitrary or capricious. It appears to me, that although Mr. Schuehle was required to serve as a guarantor on all of the loans and bonds in the record, Petitioner has not presented any evidence that this was because of the gender of its President. This lack of evidence, along with the Agency's position that this type of borrowing requirement is common industry practice, negates any claim of arbitrariness or capriciousness. Thus, I will consider those conclusions in evaluating Petitioner's claims of discriminatory credit and business practices.[4] Petitioner's President presents documentary evidence that her husband had to guaranty the firm's loans and bonds. She asserts, without presenting any further evidence, that her husband and other males obtain loans and bonds without being required to have their female spouse as a guarantor. She also claims that, irrespective of marital status, females need male guarantors but males do not need female guarantors. Such bald statements do not rise to the level of clear and convincing evidence and thus will be given limited weight in assessing this claim. In light of the Agency's conclusion that it is a common industry practice to require a spouse as a guarantor, particularly in a community property state such as Texas, I conclude that Frost National Bank's requirement was not discriminatory against women in general and Ms. Schuehle in particular. Rather, it was a requirement to reduce their credit risk. Further, it does not logically follow, without additional evidence, that because Mr. Schuehle had to guaranty Alamo's loan it discriminates against female borrowers.[5] Alamo's belief that the Agency has placed it in a "no win" situation is misplaced. Contrary to its assertion, the Agency did not conclude that if it's President's husband guaranteed the firm's loans he could gain control of the firm and thus it would be ineligible for 8(a) Program participation. The Agency stated in its initial denial letter, that Alamo had a "ten-year lease of a Specialized Motor Carrier Certificate from L & J Materials, Inc. and that [its] operating rights are dependent upon said lease," which indicates L & J can exercise control over Petitioner.[6] The Agency does not conclude that being a guarantor equates to control of the firm. Finally, Petitioner did not present clear and convincing evidence that it was denied a larger share of the market area because of gender discrimination. It presents evidence that Alamo lost out on many business opportunities because it operated in a keenly competitive market and its two major competitors were subsidiaries of large international companies. Both parent companies contracted with their subsidiaries on favorable terms. An example of this in the record shows that one of Alamo's major competitors, Statewide Transport, Inc., is a wholly owned subsidiary of Vulcan Materials Company Southwest. Vulcan owns and operates a quarry and Statewide is the exclusive hauler for Vulcan. The fact that Alamo cannot obtain business from Vulcan does not prove that Vulcan discriminates against Alamo because of the gender of its President. This simply reflects the fact that Alamo could not compete on those terms. The record contains other examples of how Alamo's competitors were able to successfully compete with Petitioner. I agree with the Agency that Petitioner has not established that gender discrimination hampered its ability to obtain business in its competitive area. Conclusion Petitioner's argument, that it was a victim of gender discrimination because its President is a woman who had trouble competing with male controlled firms and needed the President's husband to guaranty the firm's loans, is fallacious. What is missing from the argument is a showing that this was the direct result of gender discrimination and not some other reason. Lacking a showing of gender discrimination to prove social disadvantage, Petitioner cannot prevail in its appeal. In sum, after a careful review of the entire written administrative record, I find the Agency's denial of Petitioner's 8(a) application is fully supported in the record and is reasonable. I conclude that the Agency's decision is based on the entire record, that it considered all of the relevant regulatory and statutory factors, and it made no clear error of judgment. I further find Petitioner has not established its eligibility by clear and convincing evidence as required by 13 C.F.R. Section 124.105(c)(1). Accordingly, Agency's decision was not arbitrary, capricious, or contrary to law. The Agency's June 20, 1994 determination denying 8(a) Program entry to Petitioner, Alamo Trucking, Inc., is NOT ARBITRARY, CAPRICIOUS, OR CONTRARY TO LAW. See 15 U.S.C. Section 637(a)(9)(C), 13 C.F.R. Section 124.210(h)(1). This constitutes the final decision of the Small Business Administration, and it is binding upon the Petitioner, the Agency and those within the employ of the Agency. 15 U.S.C. Section 637(a)(9)(D), 13 C.F.R. Section 124.210(i).[7] ____________________________ Richard S. Arkow Administrative Law Judge ____________________ [1] Small Business Act of 1958, Section 8(a), 15 U.S.C. Section 637(a), and 13 C.F.R. Parts 124 and 134. The 8(a) Program provides business opportunities to small businesses which are owned and controlled by socially and economically disadvantaged individuals. [2] I agree with the Petitioner that for the reasons discussed, infra, education is not a relevant factor to be considered in assessing whether Ms. Schuehle was hampered in her business pursuits. Further, she does not present credible evidence of denial of educational opportunities relating to her current business. [3] The fact that she entered the teaching profession in 1972, possibly because there were no business opportunities for women at that time, is too remote to be relevant in deciding this appeal. [4] Even if I was to refuse to consider those conclusions, I would reach the same conclusions on the ultimate issues before me. [5] Petitioner notes in its reconsideration request that it has not attempted to obtain credit at another bank because it would have to disclose that it obtained credit from Frost with Mr. Schuehle's guaranty. Thus, it reasons, other banks would also demand that Mr. Schuehle be a guarantor. While that may be true, it does not follow that this establishes gender discrimination. [6] L & J Materials, Inc. was Mr. Schuehle's firm. This arrangement was terminated prior to submitting the reconsideration request. [7] Judge Benjamin G. Usher was assigned this case August 1, 1994. He retired from the Federal service January 3, 1995. I was assigned this case May 3, 1995. Apparently the case was not decided within 90 days of the filing of the petition because of numerous motions by the parties, unsuccessful settlement negotiations, the retirement of Judge Usher, and absence of a judge to assign to the case until May 3, 1995. See 15 U.S.C. Section 637(a)(9)(F), 13 C.F.R.  124.210(j).