Ridge Instrument Co., Inc., No. 4207 (August 29, 1996) Docket No. SIZ-96-4-16-29 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. _______________________________ ) SIZE APPEAL OF: ) ) Ridge Instrument Co., Inc. ) ) Appellant ) ) Docket No. SIZ-96-4-16-29 Solicitation No. ) DAAE20-95-B-3290 ) DAAE20-95-B-0429 ) Department of the Army ) Rock Island Arsenal ) Rock Island, Illinois ) _______________________________) DIGEST Three persons, two of whom are brothers, who have a number of common investments with equal shares in every business in which they invest, and act in concert in all their dealings, have an identity of interest, and may, for the purposes of determining affiliation, be treated as one person. Firms which have a common majority third-party owner are affiliated through common ownership, even though they are in different lines of business and have no business dealings with each other. DECISION August 29, 1996 HOLLEMAN, Administrative Judge: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. Sections 631 et seq., and 13 C.F.R. Part 121.[1] Issues Whether individuals, two of whom are brothers, who have a number of common investments with equal shares in every business in which they invest, and act in concert in all their dealings, have an identity of interest, and may, for the purposes of determining affiliation, be treated as one person. Whether firms which have a common majority third-party owner are affiliated through common ownership, even though they are in different lines of business and have no business dealings with each other. I. BACKGROUND On November 2, 1995, the Department of the Army, Army Armament Command, Rock Island Arsenal, Rock Island, Illinois (Army Armament Command) issued the subject solicitation, No. DAAE20-95-B-3290, for hydraulic manifolds. The Contracting Officer (CO) set the procurement aside totally for small business and assigned it Standard Industrial Classification (SIC) code 3494, Valves and Pipe Fittings, Not Elsewhere Classified, with a corresponding size standard of 500 employees. On December 1, 1995, the Army Armament Command issued the subject solicitation, No. DAAE20-95-B-0429, for variable resistors. The CO set the procurement aside totally for small business and assigned it SIC code 3676, Electronic Resistors, with a corresponding size standard of 500 employees. Both solicitations were issued as sealed bid procurements. Ridge Instrument Company, Inc. (Appellant), 7220 Governors Drive West, Huntsville, Alabama, submitted the apparent low bid for each procurement. On March 6, 1996, the CO formally determined Appellant was not responsible, and referred both procurements to the Small Business Administration (SBA) Area III Office of Government Contracting in Atlanta, Georgia (Area Office), for a possible Certificate of Competency (COC) action. On March 22, 1996, Appellant applied for a COC in both cases, and submitted its application, including an SBA Form 355, to the Area Office.[2] After reviewing the application, the Area Director decided to conduct a formal size investigation of Appellant. On March 27, 1996, the Area Office issued its size determination. The Area Office found Appellant's stock is owned by three persons, Sam Yeager and Tim Yeager, who are brothers, and C.F. Daniel (the Stockholders), each with a one-third interest. Appellant has 18 employees. The Area Office further found the Stockholders have substantial interests in a number of other firms. The Stockholders own 24% each, or 72% total, of Carolina Quality, Inc. (Carolina), 208 North Garnett St., Henderson, North Carolina, which owns and operates 11 Burger King restaurants in North Carolina and Virginia, and has 250 employees. The Stockholders own 19% each, or 57% total, of NorthStar Group (NorthStar), 164 Wind Chime Court, Raleigh, North Carolina, which owns and operates five nursing homes in North Carolina, and has 650 employees. The Stockholders own 14.33% each, or 43% total, of MedStar Pharmacy, Inc., which has 12 employees. Further, each Stockholder owns one-third of DASA, a partnership formed to hold the real estate for Carolina's Burger Kings, which has no employees; 10% of Southeastern Hospital Corporation, which owns two hospitals, one in Kentucky and one in Texas; and 18.33% of Medical Properties, L.L.C., a real estate company. The record does not contain the number of employees for either Southeastern Hospital or Medical Properties. The Stockholders are Appellant's Officers and Directors. Mr. Daniel is Secretary-Treasurer of Carolina; Treasurer of NorthStar; and a Director of both firms. Both Yeager brothers also are Directors of Carolina. The Area Office concluded the Stockholders have common investments in Appellant, Carolina, and Northstar, which constitute more than 50% of the total stock ownership of each company. Therefore, the Stockholders have the power to control the three companies. The Area Office found that, because affiliation exists between the three firms -- which together have over 900 employees -- Appellant is other than small. Appellant received the size determination on March 29, 1996, and filed the instant appeal on April 11, 1996. First, Appellant asserts the alleged affiliates are in fact unrelated firms, and it does not perform services for or receive services from NorthStar or Carolina. Further, Appellant asserts it shares no facilities, equipment or personnel with either firm; no financial obligations or guarantees; no subcontracting relationships; and no addresses, facilities, obligations, accounting, banking, or legal services. Second, Appellant asserts it is the type of small business concern which epitomizes the public policy goals and purposes of SBA. Therefore, it would be an injustice to find the firms affiliated, and the regulations require a finding they are not. Third, Appellant asserts there is a clear line of fracture between it and the other firms because the Stockholders have demonstrated a manifest intent to dissociate themselves, and their business and economic interests, from Appellant. Appellant and the other firms have no financial or contractual relationships. The firms are in different states and different types of business than Appellant. Appellant and the other firms have no pattern of acting in concert. Fourth, Appellant asserts it seeks a "bright line" test, not a balancing test where, as here, the absence of a connection between the business and economic interests of a challenged firm and the alleged affiliates justifies a finding of a clear line of fracture. II. DISCUSSION Since the instant appeal was filed within 15 days of the service of the size determination, the appeal is timely. 13 C.F.R. Section 134.304(a)(1). Appellant by itself is small. However, a size determination must include the applicant concern and all its affiliates. 13 C.F.R. Section 121.401(a)(1). Thus, the real issue in this appeal is whether Appellant is affiliated with NorthStar and Carolina, the two firms in which the Stockholders hold a majority interest and which, together with Appellant, clearly exceed the size standard. Every business concern is controlled by one or more parties. Concerns are affiliated when a third party controls or has the power to control both firms. 13 C.F.R. Section 121.401(a)(2)(ii). This control can arise from stock ownership, or occupancy of officer and director positions. 13 C.F.R. Section 121.401(c)(1)- (2). Concerns and individuals are affiliated where they have an identity of interest. 13 C.F.R. Section 121.401(a)(2)(iii). An identity of interest, amounting to affiliation, may arise in a variety of situations. It may be found among those who have common investments in more than one concern. Agrigold Juice Products, No. 4136 (1996); 13 C.F.R. Section 121.401(d). In such situations, the common business interests cause the parties to act in unison for their common benefit, and they may be treated as one party. Agrigold, No. 4136. An identity of interest may be found among family members with common investments. Id. Appellant bears the burden of rebutting the presumption of identity of interest both among persons with common investments in multiple firms, and among family members. Appellant also bears the burden of rebutting the presumption that these persons should be treated as one party. Id. In this case, the Presiding Judge finds that there is an identity of interest among the Shareholders. They have a number of common investments. Further, two of them are brothers, and there is absolutely no evidence of any estrangement or division between them. To the contrary, the three Stockholders appear to act in concert in all their business dealings, and own equal shares in every business in which they invest. Their individual firms may be separate, but there is no clear line of fracture between the Stockholders, or between them and any of the firms in which they have an interest. While they have demonstrated an intent to keep their individual businesses separate, they have not dissociated themselves from each other or from the firms they jointly own and control. As there is an identity of interest among the Shareholders, they may be treated as one person for the purpose of determining affiliation. The Shareholders together have a majority interest in Appellant, NorthStar, and Carolina, and thus one party has the power to control all three firms. Appellant's attempts to rebut a finding of affiliation are unpersuasive. Appellant relies on Size Appeal of Golden Bear Arborists, No. 1899 (1984), and the cases following it for its assertion that a finding of affiliation may be rebutted if the finding would reach a result which was unjust or inequitable under the circumstances. However, the Golden Bear line of cases does not apply a vague unfairness test to determine affiliation, as urged by Appellant. Rather, this Office's precedents require the Presiding Judge to carefully consider all the factors in each case to determine whether a clear line of fracture existed between the parties, and thus whether a finding of affiliation is warranted. Appellant has confused these cases, involving affiliation between firms whose owners are related either by family or prior business dealings, with the instant appeal involving separate firms with common owners.[3] The fact the firms have no business connections between them other than their common ownership (i.e., they are in different businesses) does not affect the application of the common management rule. Nor do the policy considerations Appellant asserts. Further, while the firms are in different lines of business, this does not affect the fact they have common ownership and management. Appellant cites no authority to show any of these factors may modify the common ownership and management rule. In the instant case, the Stockholders are controlling owners of each of the firms considered. Under these circumstances, the Presiding Judge finds that Appellant has failed to meet its burden of rebutting the presumption that an identity of interest exists between the Stockholders, so that they may be treated as one entity. See Agrigold, No. 4136; Size Appeal of Black's Guide, Inc., No. 4046 (1995); Size Appeal of Bunkoff General Contractors, Inc., No. 3804 (1993). As to the other firms in which the Stockholders have interests, they either have no employees, and thus would not affect the outcome of this size appeal; or the Stockholders do not have a majority interest, and therefore they cannot be found affiliated under the common ownership rule. II. CONCLUSION Accordingly, the Presiding Judge finds Appellant is affiliated with NorthStar and Carolina due to common ownership, and its number of employees, together with its affiliates, exceeds the applicable size standard. Appellant is therefore other than small. For the above reasons, the Area Office III determination is AFFIRMED, and the appeal is DENIED. This is the final decision of the Small Business Administration. See 13 C.F.R. Section 121.316(b)(1996). ___________________________ Christopher Holleman Administrative Judge ____________________ [1] The Small Business Administration has revised its substantive size regulations and its procedural regulations, including those for this Office. See 13 C.F.R. Parts 121 and 134, effective March 1, 1996. Since the instant solicitation was issued in 1995, the substantive size regulations then in effect apply here. However, because the appeal was filed after the effective date of the new procedural regulations, they apply. [2] In order to be eligible for a COC, an applicant must qualify as a small business under the size standard incorporated in the subject solicitation. 13 C.F.R. Section 125.5(a)(1)(1995). [3] Appellant relies upon, among others, Size Appeal of Maria Elena Torano & Associates, No. 4010 (1995) (inapposite because, unlike Appellant and its affiliates, the two firms had no common ownership or common management); Size Appeal of Aumann, Inc., No. 3743 (1993) (inapposite because the firms had no common ownership, and a clear line of fracture was established between the owners of the two firms, even though they were related); Size Appeal of Vitin Garment Manufacturing, Inc., No. 3603 (1992) (inapposite because the firms in that case were found affiliated).