Communicar, Inc., No. 4551 (April 17, 2003) Docket No. SIZ-2003-01-03-03 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. ) SIZE APPEAL OF: ) Docket No. SIZ-2003-01-03- 03 ) Communicar, Inc. ) Decided: April 17, 2003 ) Appellant ) ) SBA Expanded Economic ) Injury Disaster (EIDL) ) Loan Application ) No. 9M4904331E ) Office of Disaster Assistance, ) Area I ) Niagara Falls, New York APPEARANCES Roberta C. Pike, Esq.; Christine Staiano, Esq.; Pike & Pike, P.C., for Appellant DIGEST On appeal of a size determination pursuant to an Expanded Economic Injury Disaster Loan Application, this Office need not consider Appellant's argument that its primary industry should be classified under a particular NAICS code, when the application of that NAICS code would not result in a finding that Appellant was small. On appeal of a size determination pursuant to an Expanded Economic Injury Disaster Loan Application, Appellant failed to establish that the Area Office erred in not finding that Appellant's primary industry was Freight Forwarders or Customs Brokers (NAICS code 488510) or Advertising Agency (NAICS code 541810), when nothing in Appellant's proffer, before or after the size determination, suggested that it qualified under the description in the NAICS Manual (2002) for any of those industries. DECISION HOLLEMAN, 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 (2003). [1] Issues Whether, on appeal of a size determination pursuant to an Expanded Economic Injury Disaster Loan Application, this Office must consider Appellant's arguments that its primary industry should be classified under a particular NAICS code. Whether, on appeal of a size determination pursuant to an Expanded Economic Injury Disaster Loan Application, Appellant established that the Area Office erred in not finding that Appellant's primary industry was Freight Forwarders or Customs Brokers (NAICS code 488510) or Advertising Agency (NAICS code 541810). I. BACKGROUND A. Proceedings Below 1. Application and Denial On November 26, 2001, Communicar, Inc. (Appellant), applied to the Small Business Administration's (SBA) Office of Disaster Assistance, Area I (Area Office), in Niagara Falls, New York, for a loan under the Expanded Economic Injury Disaster Loan (EIDL) program. Appellant requested the loan for economic injuries resulting from the September 11, 2001, terrorist attacks and Federal actions taken from that date to October 22, 2001. [2] The Area Office accepted Appellant's loan application for processing on November 27, 2001. The Area Office determined that Appellant's primary industry is Limousine Service (North American Industry Classification System (NAICS) [3] code 485320), with a corresponding annual receipts size standard of $6.25 million. On December 12, 2001, the Area Office denied Appellant's loan application, in part because Appellant's receipts exceeded that size standard. On June 6, 2002, Appellant timely requested the Area Office to reconsider the denial and issue a formal size determination. [4] Appellant's SBA Form 355 and other information submitted to the Area Office show it provides "ground transportation" services, NAICS code "485320"; that its fiscal year ends on December 31st; and that it is affiliated with Corporate Car, Ltd. (CCL), which also provides ground transportation services. Appellant asserted that, as a "black-car service," an entity unique to New York City (NYC) and licensed by the NYC Taxi and Limousine Commission, Appellant was neither a limousine nor a taxi service under NAICS code 485320. Appellant receives requests for luxury-car (black-car) transportation from individual and corporate clients. It then dispatches each request to one of approximately 320 (down from 410 before September 11, 2001) independent owner/operators (black-car operators), who actually serve the passengers. After providing the service, the black-car operator submits a voucher to Appellant. Appellant bills the client and pays the independent operator, retaining a fee of 17% or 12% per fare for the dispatching, bookkeeping, and billing service. Accordingly, Appellant asserted, excluding the share of gross receipts that it received for, and "passed through" to, the black-car operators (pass-through receipts), it was a small business that, with CCL, earned less than $6.5 million annually. 2. Size Determination On November 14, 2002, the Area Office issued its formal size determination, finding Appellant other than small. First, noting that the SBA had revised the effective date for determining size, it concluded that the effective date for size determination was March 15, 2002. [5] Second, it stated that it had considered "classifying [Appellant] into other industries, including Other Support Activities For Road Transportation (NAICS [code] 488490)"; however, reasoning that "the primary factor is the service provided to the Company's customers," it concluded that Appellant's non-ownership of the cars had no bearing on the industry determination. Third, it considered Appellant's argument that only its "net receipts," which were less than $7.5 million, should be considered; however, it found that the SBA regulation excluding "amounts collected for another" applied only to travel agents, real estate agents, advertising agents, conference management service providers, freight forwarders, or customs brokers. [6] Accordingly, after increasing the size standard by 25% to $7.5 million because Appellant was located in a labor surplus area, [7] it found that Appellant and CCL exceeded the size standard. [8] B. The Appeal Appellant received the size determination on December 5, 2002, and filed its appeal with this Office on January 3, 2003. Appellant argues that the Area Office's conclusion that it was not a small business was based on clear error of fact and law insofar as it either (1) erroneously calculated Appellant's annual receipts as in excess of the corresponding size standard of $7.5 million, refusing to exclude pass-through revenues; or (2) erroneously determined that Appellant's primary industry was Limousine Service (NAICS code 485320), rather than Freight Transportation Arrangement (NAICS code 488510), Advertising Agency (NAICS code 541810), or Travel Agency (NAICS code 561510). As its primary claim of error, Appellant asserts that, because an independent operator, rather than Appellant, provides transportation to the passengers, its operations are "more akin to" Freight Transportation Arrangement, Advertising Agency, or Travel Agency. Therefore, the Area Office should have excluded from its calculations the 83% to 88% of Appellant's average annual receipts that it collected for, and passed through to, the independent black-car operators. Had the Area Office excluded these pass-through receipts, Appellant and CCL would have been well within the size standards applicable to these industries. As an alternate claim of error, Appellant asserts that the Area Office erred in finding that, because the service provided to the company's customers is the primary consideration in classifying a concern and Appellant provided luxury ground transportation to the passengers, Appellant is a Limousine Service. Rather, it argues, the service it provides to the black- car operators is collecting and dispatching requests for service and maintaining the billing system, and the black-car operators provide the luxury ground transportation to the passengers. II. DISCUSSION Appellant filed its appeal within 30 days of receiving the Size Determination; thus, it is timely. See 13 C.F.R. Section 134.304(a)(2). To prevail on the merits in this size appeal, Appellant must establish, by a preponderance of the evidence, that the Area Office made a clear error of fact or law in its size determination. See Size Appeal of Rebmar, Inc., SBA No. SIZ- 4173, at 4 (1996); 13 C.F.R. Sections 134.224, 134.314. SBA's size standards define whether a business entity is small. See 13 C.F.R. Section 121.101(a). For disaster loans (other than physical disaster loans), the applicant cannot exceed the size standard for the industry in which the applicant combined with its affiliates is primarily engaged and the applicant alone is primarily engaged. See 13 C.F.R. Section 121.301(a). In determining the primary industry in which the applicant or the applicant combined with its affiliates is engaged, 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. See 13 C.F.R. Section 121.107. [9] The regulations further require the Area Office to average the concern's annual receipts over its last three completed fiscal years. See 13 C.F.R. Section 121.104(b). On March 15, 2002, Appellant's last completed fiscal year had ended December 31, 2001; therefore, 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. See 13 C.F.R. Section 121.104(a)(1). In calculating receipts, the SBA excludes funds received in trust for an unaffiliated third party, including bookings or sales subject to commission, by certain enumerated industries. See 13 C.F.R. Sections 121.104(a)(1), 121.201 n.10. [10] These enumerated industries include Freight Forwarder or Customs Broker (NAICS code 488510), Advertising Agent (NAICS code 541810), and Travel Agent (NAICS code 561510). See id. They do not include other industries under Freight Transportation Arrangement (NAICS code 488510), [11] Limousine Service (NAICS code 485320), or Other Support Activities for Road Transportation (NAICS code 488490). A. Abandonment of Issue Regarding NAICS Code 488490 First, the Administrative Judge finds that Appellant has abandoned any possible issue regarding the Area Office's finding that Appellant's primary industry was not Other Support Activities for Road Transportation (NAICS code 488490). [12] See Size Appeal of Apex Group, Inc., SBA No. SIZ-4300, at 4 (1998) (by not raising them on appeal, appellant abandons issues considered by the Area Office). See also 13 C.F.R. Section 134.314. [13] B. Exclusion of Pass-Through Receipts Second, the Administrative Judge rejects Appellant's primary argument that, even if its primary industry is not Freight Forwarder or Customs Broker, Advertising Agent, or Travel Agent, but rather Limousine Service, the Area Office should have excluded from its calculations of Appellant's average annual receipts the 83% to 88% of receipts that Appellant collected for, and passed through to, the independent black-car operators. Pass-through receipts may not be excluded from a concern's size unless its primary industry is one for which the SBA's size regulations authorize such exclusion. See Size Appeal of Feola, Inc., dba F+A Architects, SBA No. SIZ-4528, at 4 (2003). Accordingly, the Area Office correctly found that it could not exclude receipts Appellant held for another if Appellant is correctly classified as a Limousine Service (NAICS code 485320). C. Appellant's Primary Industry In the alternative, Appellant claims that the Area Office erred in concluding that it is a Limousine Service (NAICS code 485320). The NAICS Manual (2002) provides the following description for NAICS code 485320: This industry comprises establishments primarily engaged in providing an array of specialty and luxury passenger transportation services via limousine or luxury sedans generally on a reserved basis. These establishments do not operate over regular routes and on regular schedules. NAICS Manual 626 (2002). Though Appellant argues it provides its services to the black-car operators, rather than to the passengers, such an argument might be constructed as to virtually any industry. [14] For example, one might argue that a health maintenance organization serves its networked providers, rather than its patients, by handling referrals, bookkeeping, and billings. Regardless, Appellant has failed to establish that its primary industry more appropriately lies under another NAICS code and that, had the Area Office so found, Appellant and CCL would have been found small under the applicable size standard. Appellant claims its industry is more accurately classified as Freight Transportation Arrangement, Advertising Agency, or Travel Agency. The Administrative Judge notes, at the outset, that he need not consider Appellant's arguments regarding either (1) those industries under Freight Transportation Arrangement, for which exclusion of pass-through receipts is not permitted; [15] or (2) Travel Agencies (NAICS code 561510), for which the $3.75 million size standard is less than the "net receipts" Appellant claims for itself and CCL combined. [16] Had the Area Office considered them and found that one was Appellant's primary industry, it nevertheless would have been required to find Appellant not a small business. Thus, even if the Area Office erred in finding that none was Appellant's primary industry, such error was harmless. See Size Appeal of Regent Mfg., Inc., SBA No. SIZ-4533, at 7 n.7 (2003). Therefore, the only remaining issue is whether Appellant's primary industry qualifies under Freight Forwarders and Customs Brokers or Advertising Agency. 1. Freight Forwarders and Customs Brokers (NAICS code 488510) The NAICS Manual (2002) provides the following description for NAICS code 488510: This industry comprises establishments primarily engaged in arranging transportation of freight between shippers and carriers. These establishments are usually known as freight forwarders, marine shipping agents, or customs brokers and offer a combination of services spanning transportation modes. NAICS Manual 640 (2002). Nothing in Appellant's proffer, either before or after the size determination, suggests that it qualifies as a Freight Forwarder or Customs Broker. At the risk of stating the obvious, the black-car operators transport passengers, not freight. Rather than offering "a combination of services spanning transportation modes," Appellant offers only one service, passenger transport, via one transportation mode, luxury automobile. Thus, Appellant has failed to show that the Area Office erred in not finding that its primary industry was Freight Forwarders and Customs Brokers (NAICS code 488510). 2. Advertising Agency (NAICS code 541810) The NAICS Manual (2002) provides the following description for NAICS code 541810: This industry comprises establishments primarily engaged in creating advertising campaigns and placing such advertising in periodicals, newspapers, radio and television, or other media. These establishments are organized to provide a full range of services (i.e., through in-house capabilities or subcontracting), including advice, creative services, account management, production of advertising material, media planning, and buying (i.e., placing advertising). NAICS Manual 746 (2002). As discussed above, Appellant's proffer, before and after the size determination, fails to show that it qualifies as an Advertising Agency. Though Appellant never said so, one might readily surmise that it might incidentally create an advertising campaign or at least place "advertising in periodicals, newspapers, radio and television, or other media." Even if that were so, its advertising would be on its own behalf, not of its customers as is customary with an Advertising Agency. Further, Appellant's proffer suggests any such advertising would be at best ancillary to its primary activity of dispatching, bookkeeping, and billing. Thus, Appellant has failed to show that the Area Office erred in not finding that its primary industry was Advertising Agency (NAICS code 541810). Therefore, Appellant has failed to show that the Area Office's explicit conclusion-that its primary industry is Limousine Service (NAICS code 485320)-rested upon a clear error of fact or law. III. CONCLUSION For the above reasons, the Administrative Judge concludes that Appellant has failed to establish, by a preponderance of the evidence, that the size determination was based on clear error of fact or law. Therefore, the Administrative Judge AFFIRMS the size determination and DENIES the appeal. This is the final decision of the Small Business Administration. See 13 C.F.R. Section 134.316(b). CHRISTOPHER HOLLEMAN Administrative Judge _________________________ 1 The Small Business Administration (SBA) has revised its regulations governing the small business size determination program and appeal procedures. 67 Fed. Reg. 47244 (July 18, 2002) (Final Rule). Because the size determination, which is the subject of this appeal, was issued after the effective date of this rule (September 16, 2002), the amended regulations apply to this appeal. See Final Rule at 47244. The amended regulations are available in codified form through this Office's home page at www.sba.gov/oha. 2 See 13 C.F.R. Parts 121, 123, Subpart G; 66 Fed. Reg. 48154 (Sept. 18, 2001) (SBA Declaration of Disaster #3364); 66 Fed. Reg. 50702 (Oct. 4, 2001) (Amendment #1). 3 Effective October 1, 2002, the SBA's size standards are based on the classification system published in Executive Office of the President, Office of Management and Budget, North American Industry Classification System Manual (2002) [hereinafter NAICS Manual (2002)]. See 67 Fed. Reg. 52597, 52598 (Aug. 13, 2002) (direct final rule). 4 The Area Office accepted the request for reconsideration on October 2, 2002. 5 See 13 C.F.R. Section 121.302(c). 6 See 13 C.F.R. Section 121.104(a)(1). 7 See 13 C.F.R. Section 121.301(e). 8 The Area Office also noted that Appellant owned 100% of Glendale Leasing, Inc. (GLI), as to which Appellant had failed to submit any financial information. The Area Office stated that no additional information would be required because it would not change the result. See infra note. 9 The Area Office also did not explicitly determine the primary industry in which Appellant combined with its affiliates is engaged. Though failure to address this and the size of GLI alone, see supra note, might necessitate a remand, the resolution on appeal of the Appellant's primary industry renders those issues moot. 10 Effective May 5, 2003, the SBA revised Section 121.201 to permit exclusion of pass-through receipts for Tour Operators (NAICS code 561520). See 68 Fed. Reg. 16405 (Apr. 4, 2003) (final rule). Though this rule does not state what event determines applicability, nothing suggests that it has any bearing on this decision issued before the effective date. See id. at 16405 ("Dates"). 11 Appellant refers throughout to "Freight Transportation Arrangement (NAICS 488510)." However, of the industries under NAICS code 488510, only Freight Forwarders and Customs Brokers are designated for exclusion of pass-through receipts; Marine Shipping Agents, Non-Vessel Owning Common Carriers, and Household Goods Forwarders are not. Compare 13 C.F.R. Section 121.104(a)(1) with 13 C.F.R. Section 121.201 n.10 and with NAICS Manual 640 (2002). 12 The Area Office stated that it considered classifying Appellant into other industries, including Other Support Activities for Road Transportation. The record does not state whether the "other industries" included those claimed by Appellant on appeal; nor does it evince that Appellant claimed, before the size determination, that it qualified under them. 13 For similar reasons, this Office will not consider a new issue raised for the first time on appeal unless necessary to prevent manifest injustice to a party not at fault for the omission. See Size Appeal of Sabreliner Corporation, SBA No. SIZ- 3478, at 10 (1991). As discussed supra note, the record is silent as to the industries Appellant now claims on appeal. In the interests of judicial economy and a prompt resolution of this case, however, the Administrative Judge will consider Appellant's claims as if they were made to the Area Office, rather than remand the case to complete the record. 14 Appellant's assertion the drivers are independent contractors does not change the analysis here. This Office has rejected the argument that a firm may exclude the amounts collected from independent contractors from its receipts, unless the contractors fall into one of the enumerated categories of 13 C.F.R. Section 121.104(a)(1). Size Appeal of Donez Home Team Real Estate, SBA No. SIZ-3753, at 6-8 (1993). 15 See supra note 1 and accompanying text. 16 See 13 C.F.R. Sections 121.201, 121.301(e). Posted: April, 2003