Barnes-Williams-Anser, Inc., No. MSB-512 (June 20, 1995) Docket No. MSBE-94-10-20-48 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. ______________________________ ) IN THE MATTER OF: ) ) Docket No. MSBE-94-10-20-48 Barnes-Williams-Anser, Inc. ) ______________________________) APPEARANCES For the Petitioner: For the Agency: A. Francis Vitt, Jr., Esq. John T. Spotila, Esq. Altmann and Vitt General Counsel 1616 H Street, N.W. John W. Klein, Esq. Washington, DC 20006 Agency Representative Small Business Administration 409 Third Street, SW Washington, DC 20416 DIGEST When the Agency requests additional materials from an 8(a) program applicant in order to support the applicant President's assertion that he is engaged full-time for the applicant concern, and the applicant does not submit sufficient additional evidence to support such an assertion, the Agency's conclusion that the applicant's President is not employed full-time to satisfy the requirement of 13 C.F.R. Section 124.104(a)(2) is reasonable. When the Agency has determined that the applicant concern's President does a considerable amount of work for another business, hindering the amount of time available for managing the applicant concern, a finding by the Agency that the President, who owns 100 percent of the applicant concern, is not a full-time employee of the applicant concern is reasonable. If the Agency finds that an 8(a) applicant does not have at least one socially and economically disadvantaged full-time manager who holds the position of President or Chief Executive Officer, then the Agency's determination that the applicant concern is not eligible for admission into the 8(a) program is not arbitrary and capricious. FINAL DECISION June 20, 1995 ARKOW, Administrative Law Judge: Petitioner Barnes-Williams-Anser, Inc. (BWA) is appealing a decision by the Respondent U.S. Small Business Administration (SBA) denying it entry into the 8(a) Program [1] because the individual who owns and controls the firm, BWA's President, A. Anthony Serdula, has not satisfactorily established he is the full-time manager of the firm. The basis for the SBA's conclusion is that Mr. Serdula is also the President of Anser Construction Corporation and his duties at Anser conflict with the management of BWA.[2] BWA claims the SBA's conclusion is arbitrary, capricious, and contrary to law. I disagree. 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 BWA established by a preponderance of the evidence that Mr. Serdula is a full-time manager and that his outside business or employment interests do not conflict with the management of the firm or hinder it in achieving the objectives of its business development plan. 13 C.F.R. Sections 124.104(a)(1)-(2), 134.31(a). Whether the proposed action of the SBA denying BWA 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 July 1993, BWA applied for admission into the 8(a) Program. The basis for the application is that the BWA is owned and controlled by Mr. Serdula, a socially and economically disadvantaged individual--a Hispanic American. The SBA denied the application on May 18, 1994. One of the grounds for denial was that Mr. Serdula did not devote full-time to the management of BWA. The basis for that conclusion was that Mr. Serdula owned other businesses, Anser Construction, a building inspection service, and a real estate construction and management firm.[3] On June 20, 1994, BWA requested reconsideration of its denial and submitted additional evidence supporting its request. The SBA denied BWA's request for reconsideration on September 6, 1994. The only ground for denial, on reconsideration, was that BWA did not establish that Mr. Serdula devotes full-time to the applicant concern.[4] The rationale for the SBA's denial of the reconsideration request was: [Y]ou have not provided evidence that you are engaged full-time in the management of the applicant concern. The documentation you provided on reconsideration further substantiates the fact that you are involved in the operation of the applicant concern, as well as serving as President of Anser Construction. Your outside business interest conflicts with the management of the applicant concern, and prevents the firm from achieving the business development objectives of the 8(a) program. Reconsideration Denial Letter at 2. In its application for admission into the 8(a) Program, BWA states that Mr. Serdula works one hour per week as President of Anser Construction Corporation. The record contains considerable information about Anser Construction Corporation, which is relevant in determining whether Mr. Serdula's involvement in Anser Construction detracts from his ability to manage BWA. BWA provided the names, addresses, and phone numbers of seven individuals who it contends could provide information to support its contention that Mr. Serdula works full-time for BWA and suggests that if the SBA had any doubts about the issue it could contact those individuals. BWA did not include any statements or other evidence from these individuals. Mr. Serdula stated that as President of both corporations "I do all hiring, firing, and administrative work to run the businesses" and "negotiate subcontracts, contracts and purchases" and "sign all banking documents." Mr. Serdula also indicated that the personnel, office space, and most equipment are the same for both BWA and Anser. Request for Reconsideration at 2. Position of the Parties In its appeal, BWA contends, in pertinent part, that the SBA erred in construing the regulations to mean that Mr. Serdula must devote full-time to BWA; and the determination by the SBA that BWA failed to submit sufficient evidence to conclude Mr. Serdula devotes full-time to BWA is contrary to the facts in the record and is an arbitrary and capricious decision. BWA argues that the phrase in 13 C.F.R. Section 124.104(a)(1), "managed on a full-time basis," does not mean that a person devotes full-time to a firm, that is, forty hours a week. BWA reasons that full-time work occurs whether a business requires its chief executive officer to work 15 hours a day or four hours a day. BWA points out that the SBA never requested proof of how much time BWA needs from Mr. Serdula and "the only fact on the record is that BWA is managed on a full-time basis by Mr. Serdula." Appeal Petition at 15. BWA asserts further that there "is no fact on the record that shows that BWA is receiving less than full-time management by Mr. Serdula." Id. It argues that a person can satisfy the full-time requirements of one or more businesses. Finally, BWA asserts that, for all intents and purposes, Anser Construction Corporation and BWA are one and the same--they have the same President, the same employees, and the same business contracts, vendors and independent contractors. Thus, it assumes that full-time management of one is full-time management of the other. The SBA's Answer asserts that BWA has not established Mr. Serdula is a full-time manager. The SBA bases its assertion on its analysis of: the tax returns and financial statements of BWA and Anser, their primary business activities, their organiza- tional charts, the resume of Mr. Serdula, and the personal tax returns of Mr. Serdula. The Answer also asserts that because Mr. Serdula's duties are identical for both BWA and Anser he cannot be the full-time manager of BWA. Discussion An applicant to the 8(a) Program must meet all of the eligibility requirements set forth in 13 C.F.R. Sections 124.102- 124.109. 13 C.F.R. Section 124.101(a). Among the elements of proof is that a socially and economically disadvantaged full-time manager must hold the position of President or Chief Executive Officer which precludes any "outside employment or any other business interest by the individual which conflicts with the management of the firm or hinders it in achieving the objectives of its business development plan)." 13 C.F.R. Section 124.104(a)(2). This element must be proved by a preponderance of the evidence. 13 C.F.R. Section 134.31(a). See also Matter of Westsun Petroleum Products, Inc., SBA No. 427 (1993). The term "full-time" has not been defined in the regulations. Decisions addressing this issue have taken a number of different approaches in trying to decide the term's meaning. Some of the cases hinged on a mathematical calculation of the number of hours worked in outside employment (Matter of MSC Electric, SBA No. 442 (1993); Matter of KRW, Incorporated, SBA No. 379 (1991)); another on the amount of income earned at another job (Matter of Allside Services Corporation, SBA No. 439 (1993)); and yet another on the credibility of the claims of full-time employment (Matter of Allside, supra; Matter of MSC, supra). The SBA had to decide whether Mr. Serdula managed BWA on a full-time basis and whether his outside business interest conflicts with the management of the firm or hinders it from achieving its objectives. That decision could only be made by analyzing all of the evidence presented, the credibility of the evidence, and the rational conclusions drawn from the evidence. That analysis must recognize that BWA bears the burden of establishing all of the above by a preponderance of the evidence. I must decide if that decision was arbitrary, capricious, or contrary to law. In Steadman v. Securities and Exchange Commission, 450 U.S. 91 (1981), the Supreme Court noted that the preponderance of the evidence standard is the traditional standard in civil and administrative proceedings. In interpreting the Administrative Procedure Act, the Court cited legislative history which demonstrated Congress wanted to impose a burden of proof higher than the scintilla-of-evidence test. Id. at n. 21. Preponderance of the evidence means evidence which is of greater or more convincing weight, which makes the proposition being asserted more likely than not to be true, given all evidence in opposition. Jones v. United States, 239 F.Supp. 474, 480-481 (E.D. La. 1966), Aff'd, 358 F.2d 309 (5th Cir. 1966). Even where the evidence is in or near equipoise on an issue of fact, the preponderance of the evidence burden of proof has not been met. Mayfield v. Aetna Life Insurance Co., 100 F.2d 199 (5th Cir. 1938). In reviewing an administrative decision, the reviewing body need not weigh the evidence, but instead "only determine that there is in the record such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Pagel, Inc. v. Securities and Exchange Commission, 803 F.2d 942, 945 (8th Cir. 1986). The starting point for the analysis is BWA's statement that Mr. Serdula devotes full-time to the firm and only spends one hour per week serving as President of Anser Construction. BWA presents little evidence to support this claim. Even after being informed by the SBA that it did not establish full-time management, BWA did not come forth with other persuasive evidence to support its position. BWA, as part of its reconsideration request, should have included additional information to overcome the reasons for the denial. See 13 C.F.R. Section 124.206(c)(1). By contending the SBA never asked how much time BWA needs from Mr. Serdula and by identifying others who it claims would support its contention, BWA loses sight of its burden to establish eligibility. The SBA is under no obligation to search out evidence that would help BWA. Perhaps Mr. Serdula can manage two businesses full-time and correctly contends that full-time does not mean he must devote 40 hours per week to each business. I need not decide that because Mr. Serdula assumed the responsibility for managing two businesses. This, of necessity, competes for his time during the business day and creates an unhealthy tension which one can conclude causes conflict which is adverse to BWA.[5] This case is similar to Westsun, supra, in that Westsun's President claimed he managed the firm on a full-time basis and owned a 51 percent interest in two separate businesses. But unlike this case, Westsun's President presented evidence that he managed Westsun on a full-time basis, merely possessed an owner- ship interest in the other businesses, and performed little or no work for them. On those facts, the Administrative Law Judge found that it was arbitrary and capricious to conclude he was not the full-time manager of Westsun. Here, unlike Westsun, there is evidence Mr. Serdula performs significant duties, both qualita- tively and quantitatively, for both Anser Construction and BWA. BWA's assertion that Anser Construction and BWA are one in the same detracts rather than supports its position that Mr. Serdula is its full-time manager. The evidence shows that Anser Construction is a business with over a million dollars in gross revenue in 1992. It also shows that Mr. Serdula's responsibilities at Anser Construction are extensive. It appears he makes all of the major decisions at Anser.[6] Mr. Serdula's performance of these duties at Anser bring into serious question whether he spends only one hour per week on Anser's business. Based on the relative success of Anser, it is reasonable for the SBA to conclude that Mr. Serdula spends considerably more time than he claims on Anser's business and that this necessarily detracts from the time required to run BWA. BWA claims Mr. Serdula does the same things for itself and for Anser. That is not a reasonable conclusion which the SBA must accept because BWA is much smaller than Anser. Absent a showing to the contrary, it is reasonable for the SBA to conclude that Anser demands more time than BWA and that those demands conflict with Mr. Serdula's ability to manage BWA on a full-time basis. Conclusion Whether the demands of Anser Construction conflict with or hinder BWA was a conclusion the SBA had to reach, based on all the facts presented to it by BWA. The SBA's conclusion, that it does and Mr. Serdula cannot be a full-time manager of BWA, is not unreasonable. Lacking a showing of unreasonableness, I cannot conclude the decision is either arbitrary, capricious, or contrary to law. Accordingly, BWA cannot prevail in its appeal. In sum, after a careful review of the entire written administrative record, I find the SBA's denial of BWA's 8(a) application is fully supported in the record and is reasonable. I further find that the SBA'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. Accordingly, I conclude that BWA has not established its eligibility by a preponderance of the evidence. See Steadman v. Securities and Exchange Commission, 450 U.S. 91 (1981). Respondent's September 6, 1994 determination denying 8(a) Program entry to Petitioner, Barnes-Williams-Anser, 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. Section637(a)(9)(D), 13 C.F.R. Sections 124.210(i), 134.32(a)(4).[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 is intended to be used exclusively for business development purposes to help small businesses owned and controlled by socially and economically disadvantaged individuals. . . ." 13 C.F.R. Section 124.1(a). [2] The SBA also denied eligibility because Petitioner failed to establish Mr. Serdula was a Hispanic-American. The SBA withdrew that reason for denial. [3] BWA convinced the SBA that the building inspection service and the real estate construction and management business are no longer relevant to the issue of "full-time management." [4] BWA cured the other deficiencies noted in the initial denial. [5] This case is unlike most of the other "full-time" issue cases decided by the Office of Hearings and Appeals of the SBA. Those cases addressed outside employment performed during nonbusiness hours. See cases discussed supra. That distinction is important. [6] See the discussion of Mr. Serdula's duties, supra. [7] Judge Benjamin Usher was assigned this case on October 24, 1994. He retired from the Federal service January 3, 1995. I was assigned the case June 2, 1995. The case was not decided within 90 days of the filing of the Petition because of the absence of an Administrative Law Judge and a heavy caseload at the SBA. See 15 U.S.C. Section 637(a)(9)(F), 13 C.F.R. Section 124.210(j).