Skyview Excavating and Grading, Inc., No. MSB-590 (October 27, 1997) Docket No. MSBE-97-4-4-6 MSB-590 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. _________________________________ ) IN THE MATTER OF: ) Docket No. MSBE-97-4-4-6 ) Skyview Excavating and Grading, ) Decided: October 27, 1997 Inc. ) ________________________________ ) APPEARANCES Kent C. Dugmore, Esq., Parsons Behle & Latimer, for Petitioner Skyview Excavating and Grading, Inc. Sandra L. Park, Esq., John T. Spotila, Esq., for Respondent Small Business Administration. DIGEST To be accepted into the 8(a) program on a claim of social disadvantage based upon gender discrimination, the applicant must demonstrate the individual personally suffered chronic and substantial gender discrimination, and show that this social disadvantage had a negative impact on the individual's entry into and/or advancement in the business world. This nexus may be shown by any relevant evidence, but the SBA particularly emphasizes, when relevant, evidence of discrimination in education, employment, and business history. The applicant need not prove all of these emphasized criteria. While evidence that gender discrimination exists in a particular industry is relevant to lend credibility to the claim of social disadvantage based upon gender discrimination, this evidence, by itself, does not establish that a particular individual personally suffered social disadvantage. If there is more than one reason for denying an 8(a) application and at least one is proper, the SBA's denial is not arbitrary, capricious, or contrary to law. FINAL DECISION ARKOW, Administrative Law Judge: Petitioner Skyview Excavating and Grading, Inc. (Skyview) appeals a decision by the Respondent Small Business Administration (SBA) denying it entry into the 8(a) program. [1] The SBA found Skyview ineligible for the 8(a) program because the individual upon whom eligibility is based, Ms. Ann Wardell, President of Skyview, is not socially disadvantaged based upon gender discrimination, [2] and because Ms. Wardell's spouse received greater compensation from Skyview than did Ms. Wardell. [3] Skyview claims the SBA's decision is arbitrary, capricious, and contrary to law. I disagree. Jurisdiction Jurisdiction to decide this appeal is proper. 15 U.S.C. Section 637(a)(9); 13 C.F.R. parts 124 and 134. The appeal is timely. 13 C.F.R. Sections 124.210(b), and 134.202(a). Issue Whether the decision of the SBA denying Skyview Excavating and Grading, Inc. 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 [4] Skyview, a construction company, applied for admission into the 8(a) program on February 23, 1996. The basis for the application is that Ms. Ann Wardell, who owns and controls Skyview, is a socially and economically disadvantaged individual. Skyview claimed that Ms. Wardell is socially disadvantaged because of gender discrimination. The SBA denied the application on July 30, 1996. On September 5, 1996, Skyview requested that the SBA reconsider its denial and presented evidence to support the request. The SBA denied the reconsideration request on February 19, 1997. The reasons for the denial were: You did not present clear and convincing evidence that you are socially disadvantaged within the guidelines established by SBA. You were previously advised that it must be demonstrated that discrimination suffered was chronic and substantial. You provided only one example of discrimination by a bank over a five year period. You further explained that working with one specific loan officer, you obtained lines of credit from that same bank. Your one example of discrimination was associated with the start-up financing of your concern (that is, the first five years of the thirteen years of your company's existence). This is not uncommon to Small Business in general. As such, it was determined that chronic and substantial discrimination were not demonstrated. You have not provided evidence that you, as the President of the firm, are the highest compensated employee or that taking a lower salary than a nondisadvantaged individual is in the best interest of the applicant concern or you personally. You stated that you have elected to pay your key people what they are worth. The individual who is cited as being compensated at a higher rate than you is your spouse, Mr. Jeff Wardell. Since both of your incomes are part of the same household, the rationale of how Mr. Wardell's higher salary benefits to you or your concern is not apparent. Administrative Record (AR) at Ex. 1. Skyview appealed that denial on April 4, 1997. The Wardells' personal tax returns and W-2 Forms reflect that, in 1994, Ms. Wardell received $28,000 in compensation from Skyview, and Mr. Wardell received $33,600. In 1993, Ms. Wardell received $5,000 and Mr. Wardell $51,400. AR at Ex. 18. Skyview presented its evidence to establish Ms. Wardell's social disadvantage in a narrative statement accompanying its 8(a) application and in its request for reconsideration. See AR at Ex. 18 and Ex. 6. The only other evidence supporting the claim of social disadvantage is an undated letter from a Ms. Terrilyn B. Morgan. This letter states, in pertinent part: As the commercial lender assigned to Skyview Excavation and Grading, Inc. from January 1990 to December 1994, I encountered repeated resistance in obtaining approvals for credit requests for the company. Although I emphatically believe that my employer, West One Bank, Utah, fully subscribed to a non-discriminatory lending posture, a bias against a women-owned construction business did exist. I worked diligently to give the company a chance to prove its worth. In each evaluation of the company for a new credit request, I needed to provide substantial information on [Mr.] Jeff Wardell as the experience behind the company, although [Ms.] Ann Wardell was the owner of the company and was fully capable of handling the business on her own. I believe that despite the efforts of women to "prove" their worth, there are facets of both the banking and construction industry that are just not ready and/or willing to accept women as equal players in the business game. AR at Ex. 6. Position of the Parties Skyview argues two points in its Appeal Petition. First, Skyview contends Ms. Wardell is socially disadvantaged because of chronic gender discrimination. It argues that the SBA misinterpreted Ms. Wardell's use of the words "everyday event" to mean something other than "chronic," and that, with respect to the various alleged incidents of sexual harassment, filthy jokes, and "being talked down to," the SBA's conclusion is incorrect. Skyview emphasizes, "[I]n our society male counterparts who are running construction companies don't have to put up with this kind of behavior, and I shouldn't have to either!" Appeal Petition at 2 (emphasis in original omitted). Skyview also cites, for the first time in its Appeal Petition, incidents of alleged gender discrimination involving the Department of the Interior, the U.S. Army Corps of Engineers, and private contractors to establish chronic gender discrimination, and attaches to its Appeal Petition its attorney's affidavit regarding the Department of the Interior incidents. Appeal Petition at 2-4. [5] Second, Skyview contends that at times all of its employees received a "higher wage" than Ms. Wardell, because of the Davis- Bacon wage requirements on federal contracts. In order to pay Davis-Bacon wages and still be competitive with other construction firms, Ms. Wardell has to accept less compensation than others in the firm. Further, Ms. Wardell's lower salary helps Skyview to grow and prosper. Appeal Petition at 5-6. Accordingly, the SBA's denial of Skyview's 8(a) application was arbitrary, capricious, and contrary to law. [6] The SBA contends that its conclusion that Skyview failed to demonstrate by clear and convincing evidence the social disadvantage of its owner, Ms. Wardell, was reasonable. The SBA also contends that Skyview did not adequately explain why Mr. Wardell's higher compensation was in the best interest of the firm. Accordingly, its denial of Skyview's 8(a) application was not arbitrary, capricious, and contrary to law. Discussion I To be accepted into the 8(a) program, Skyview must establish that Ms. Wardell, who owns, controls, and manages Skyview, is socially and economically disadvantaged. 13 C.F.R. Sections 124.103-124.106. "Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identities as members of groups without regard to their individual qualities." 13 C.F.R. Section 124.105(a). Because Ms. Wardell's claim of social disadvantage is based upon her gender, Skyview must demonstrate that Ms. Wardell personally suffered gender discrimination in American society, rather than merely establish that women, as a group, could be considered socially disadvantaged because of their gender. 13 C.F.R. Section 124.105(c)(1)(i)-(ii). Further, Skyview must establish that the gender discrimination she suffered was "chronic and substantial, not fleeting or insignificant." 13 C.F.R. Section 124.105(c)(1)(iv). In addition to proving chronic and substantial gender discrimination, Skyview must show that this gender discrimination had a negative impact on Ms. Wardell's entry into and/or advancement in the business world. 13 C.F.R. Section 124.105(c)(l)(v). This nexus may be shown by any relevant evidence, but the SBA particularly emphasizes, when relevant, evidence of discrimination in education, employment, and business history. Id. The 8(a) applicant need not prove all of these emphasized criteria. Matter of Sierra Environmental Services, SBA No. 550 at 10 (1996); Matter of Informed Decision Services, Inc., SBA No. 518 at 7 (1995). But without proof that the gender discrimination was personal to Ms. Wardell, was rooted in treatment she experienced in American society, was chronic and substantial, and had a negative impact on her entry into and/or advancement in the business world, Skyview cannot be admitted into the 8(a) program. Skyview bears the burden of establishing the social disadvantage of Ms. Wardell by clear and convincing evidence. 13 C.F.R. Section 124.105(c)(1). Clear and convincing evidence is an evidentiary standard that is more stringent than the preponderance of evidence standard and less stringent than proof beyond a reasonable doubt. This characterization, however, does not define it. A generally accepted definition is evidence which produces, in the mind of the trier of fact, an abiding conviction that the truth of the factual contentions is highly probable. Colorado v. New Mexico, 467 U.S. 310, 316 (1984). It does not mean evidence which unequivocally proves a point or dispels all reasonable doubt. Yet it is greater than a preponderance of evidence, which requires proof that the existence of a fact is more probable than its nonexistence. United States v. Mastrangelo, 561 F. Supp. 1114, 1120 (E.D.N.Y. 1983). II Skyview has failed to meet its evidentiary burden of establishing that Ms. Wardell is socially disadvantaged. Although Skyview presents some evidence in the area of business history to support its claim of gender discrimination, this evidence falls short of the requirement for clear and convincing evidence. The deficiency, for the most part, appears to result from a qualitative and quantitative failure of proof, not necessarily a conclusion that Ms. Wardell did not suffer gender discrimination that may have affected her success in the business world. [7] Skyview alleges widespread gender discrimination against women in the construction industry in support of its claim that Ms. Wardell is socially disadvantaged. While evidence to support such allegations is relevant to lend credibility to the claim of social disadvantage based upon gender discrimination, Skyview must establish that Ms. Wardell "personally suffered social disadvantage, not merely claim membership in a non-designated group which could be considered socially disadvantaged." 13 C.F.R. Section 124.105(c)(1)(ii). Thus, establishing that women in general are discriminated against in the construction industry, by itself, does not establish that Ms. Wardell is socially disadvantaged. A Skyview alleges that, because of gender discrimination, it was denied surety bonding by Eubank Insurance, Gaskill Insurance Brokers, and Blackburn-Jones Insurance; that it was denied credit by Barnes Bank and the Bank of Utah; and that it was denied a letter of credit by the First National Bank of Morgan. AR at Ex. 18. These allegations do not establish gender discrimination by clear and convincing evidence. First, they all allegedly occurred in 1984, during Skyview's first year in business, when it did not yet have a business credit record, and eight years before it applied to the 8(a) program. Second, other than Ms. Wardell's statement, there is no corroborating evidence of these denials of credit, much less the reason for these denials. Accordingly, the SBA's conclusion, that these denials of credit in Skyview's early years are typical of a new business and that Skyview failed to establish they were caused by gender discrimination, is reasonable. Skyview presents a number of other allegations of gender discrimination that are not supported by clear and convincing evidence. For example, Ms. Wardell claims that she has been the butt of numerous jokes and sexual innuendo; that she is not taken seriously because she is a woman; that salesmen, upon hearing her voice on the telephone, ask for the man who runs the business; and that male-owned construction companies have built successful businesses in far less time than Skyview. AR at Ex. 6 and Ex. 18. These allegations do not contain sufficient detail and are not corroborated by other evidence to prove that they amount to gender discrimination that had a negative impact on Ms. Wardell's entry into and/or advancement in the business world. See 13 C.F.R. Section 124.105(c)(1)(v). B The undated letter from Ms. Terrilyn Morgan quoted, supra, describes Skyview's attempts to obtain credit from West One Bank from January 1990 to December 1994. Ms. Morgan stated she repeatedly encountered resistance in obtaining credit approvals for Skyview. She had to provide substantial information about Mr. Wardell even though Ms. Wardell owned Skyview and was capable of running it on her own. However, she emphatically states that West One Bank fully subscribed to a nondiscriminatory lending posture. Absent from the AR is any allegation, much less evidence, that West One Bank denied credit to Skyview or granted it credit on less favorable terms because Ms. Wardell is a woman. On the contrary, the AR reflects that on February 22, 1996, Skyview had a line of credit with West One Bank for $30,000, all of it unused. AR at Ex. 22. This contradictory evidence regarding Skyview's relationship with West One Bank does not meet the "clear and convincing" requirement needed to establish her claim of gender discrimination. However, even if West One Bank's treatment of Skyview and Ms. Wardell did establish gender discrimination, Skyview has not established the required nexus between this discrimination and negative impact on her entry into or advancement in the business world. See 13 C.F.R. Section 124.105(c)(1)(v). C In addition, Skyview does not establish by clear and convincing evidence that Ms. Wardell's claimed gender discrimination was "chronic and substantial, not fleeting or insignificant." 13 C.F.R. Section 124.105(c)(1)(iv). There are no allegations of gender discrimination against Ms. Wardell prior to Skyview's formation in 1984. The allegations of gender discrimination discussed in sections A and B, supra, were not established by clear and convincing evidence and cannot be considered in deciding whether Skyview has established a pattern of chronic and substantial discrimination. The evidence in the AR thus fails to establish a pattern of chronic and substantial gender discrimination. Accordingly, the SBA correctly concluded that Skyview has not established by clear and convincing evidence that its president, Ms. Wardell, is socially disadvantaged. [8] III Because the SBA has correctly concluded that Ms. Wardell is not socially disadvantaged, it is unnecessary to examine the other ground for the SBA's denial of Skyview's 8(a) application. It is well settled that if there is more than one reason for denying an 8(a) application and at least one is proper, the SBA's denial is not arbitrary, capricious, or contrary to law. Matter of Technical Assistance International, Inc., SBA No. 530 at 5 (1995); Matter of TAO of Systems Integration, Inc., SBA No. 528 at 6 (1995); Matter of B&H Contracting Company, Inc., SBA No. 460 at 22 (1994). Even so, the SBA also found that Mr. Wardell, a nondisadvantaged individual, received greater compensation from Skyview than did Ms. Wardell, and that Skyview did not demonstrate that such a compensation arrangement was "in the best interest of the applicant." AR at Ex. 1. SBA regulations prohibit non-disadvantaged individuals who are employees from receiving excessive compensation from an applicant firm. 13 C.F.R. Section 124.104(c)(3). [9] There is no dispute that Mr. Wardell received greater compensation from Skyview than did Ms. Wardell. AR at Ex. 18 (IRS Forms W-2 for 1993 and 1994). What is disputed is whether Mr. Wardell's compensation is justified under current SBA regulations or whether that compensation violates the compensation restriction on nondisadvantaged individuals. See 13 C.F.R. Section 124.104(c)(3). The SBA concluded that the excessive compensation was not justified. This conclusion cannot be overturned unless it is arbitrary or capricious. Technical Assistance, SBA No. 530 at 7. It may be appropriate for a nondisadvantaged individual to receive greater compensation than the firm's president, where the nondisadvantaged individual has a "special talent" or skill the marketplace values very highly, and the firm needs this talent or skill in its operation. Certain physicians, scientists, or engineers might fall into this category. See Technical Assistance, SBA No. 530 at 7; Matter of Applied Quality Communications, Inc., SBA No. 433 at 14 (1993). Skyview asserts that it pays its key employees "what they are worth" and that Ms. Wardell has put her money back into the company to make it stronger. AR at Ex. 6 and Ex. 14. However, Skyview presents no supporting evidence for this assertion. Such factual evidence might include a statement of what specialized talent or skill Mr. Wardell possesses, the hourly or weekly rate at which the marketplace values that talent or skill, and the amount of time Mr. Wardell spends in performing for Skyview tasks requiring that talent or skill. Moreover, the record reflects that Mr. Wardell, Skyview's Project Manager-Superintendent, who is well-respected in the construction community, and whose responsibilities include estimating, job costing, and operations management, is a management employee. He has been in the construction business since 1974, and joined Skyview when it was formed. AR at Ex. 17, pp. 107-08. The AR also reflects that only recently, on April 1, 1996, did Ms. Wardell replace her husband as the "qualifying management person" on Skyview's Utah contractor's license. AR at Ex. 17, pp. 115-17. This evidence supports the reasonableness of the SBA's conclusion that Mr. Wardell's compensation is excessive, because this compensation brings into question the extent of Mr. Wardell's participation in Skyview's management. Accordingly, the SBA's conclusion is not arbitrary, capricious, or contrary to law, and cannot be overturned. IV The SBA's denial of Skyview's 8(a) application must be sustained unless a review of the written administrative record demonstrates the SBA acted arbitrarily, capriciously, or contrary to law in concluding Ms. Wardell is not socially disadvantaged. 13 C.F.R. Section 124.210(h)(1). Such a review is narrow and does not permit me to substitute my own judgment for that of the SBA. My review must examine whether the SBA considered all of the facts presented and correctly applied the applicable laws and regulations to those facts in deciding whether or not to approve Skyview's 8(a) application. Then, I must determine whether the SBA made a clear error of judgment in reaching its decision before I can find the SBA acted arbitrarily, capriciously, or contrary to law. See Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). A clear error of judgment can be found if the SBA: fails to properly apply the law and regulations to the facts of the case; fails to consider an important aspect of the problem; offers an explanation for its determination that runs contrary to the evidence; or provides an implausible explanation that is more than a difference between my views and those of the SBA. In sum, the SBA must articulate a satisfactory explanation for its action, including a rational connection between the facts found and its determination. See id. After a careful review of the entire written administrative record, I find the SBA considered all the evidence presented by Skyview and correctly applied the laws and regulations applicable to these proceedings to that evidence prior to denying eligibility. The SBA acted reasonably in concluding that Skyview did not establish Ms. Wardell's social disadvantage by clear and convincing evidence as required by 13 C.F.R. Section 124.105(c)(1). Further, the SBA acted reasonably in concluding that Skyview did not establish that its higher compensation of Mr. Wardell was in the best interest of the firm. Thus, the SBA had a rational basis for reaching its decision that Skyview did not establish its eligibility for admission into the 8(a) program. Accordingly, the SBA's decision cannot be considered arbitrary, capricious, or contrary to law. Conclusions Respondent Small Business Administration's determination denying 8(a) program entry to Petitioner, Skyview Excavating and Grading, 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 is the final decision of the Small Business Administration and is binding upon all parties, including those within the employ of the Agency. 15 U.S.C. Section 637(a)(9)(D); 13 C.F.R. Section 124.210(i). ______________________________ RICHARD S. ARKOW Administrative Law Judge _________________________ [1] Small Business Act of 1958, Section 8(a), as amended, 15 U.S.C. Section 637(a); 13 C.F.R. part 124. The purpose of section 8(a) is to "promote the business development of small business concerns owned and controlled by socially and economically disadvantaged individuals so that such concerns can compete on an equal basis in the American economy." 15 U.S.C. Section 631(f)(2)(A). [2] See 13 C.F.R. Section 124.105(c)(1)(i). [3] See 13 C.F.R. Section 124.104(c)(3). [4] Additional facts pertinent to Skyview's claims are found in the Discussion. [5] This appeal must be decided "solely on a review of the written administrative record." 13 C.F.R. Section 124.210(h)(1). Accordingly, I am unable to consider this new evidence. Matter of Pride Technologies, Inc., SBA No. 557 at 6, n.8 (1996). [6] The AR contains no evidence supporting this argument. Accordingly, because my review of the SBA's decision is limited to the evidence contained in the AR, in the absence of such evidence, I cannot consider this argument on appeal. [7] In the area of education, Ms. Wardell makes only a single generalized assertion: "In high school, girls were not encouraged [to] pursue careers other than as a homemaker [or] to obtain more education." AR at Ex. 6. However, she cites no specific incidents as evidence of gender discrimination. [8] I have considered Skyview's other allegations of gender discrimination. None is meritorious and none warrants further discussion beyond concluding that these allegations are not established by clear and convincing evidence. For a similar case involving numerous generalized allegations of discrimination and scant evidence to prove those allegations, see Matter of Interword Corporation, Ltd., SBA No. 490 (1994). There it was held that, even where it was likely that some of the allegedly discriminatory incidents could be proven, without clear and convincing evidence to support what was asserted to be fact, the SBA's conclusions were not arbitrary or capricious. [9] Mr. Wardell's compensation cannot be "deemed" excessive by the SBA because he is not an owner of Skyview. See 13 C.F.R. Section 124.104(c)(3); Technical Assistance, SBA No. 530 at 7. Posted: November, 1997