Canal Barge Company, Inc., No. 3961 (November 1, 1994) Docket No. SIZ-94-7-8-93 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. SIZE APPEAL OF: ) ) Canal Barge Company, Inc. ) ) Appellant ) ) Docket No. SIZ-94-7-8-93 Solicitation No. ) N62387-94-R-8525 ) Department of the Army ) Military Sealift Command ) Central Technical Activity ) Washington, D.C. ) DIGEST Where a challenged firm's affiliate has previously been deter mined to be other than small under a specific size standard by a Regional Office for reasons that were not contract-specific, and the challenged firm, as well as the affiliate fail to recertify as small businesses, the challenged firm may not subsequently self-certify as small within the same size standard when bidding on a solicitation unless it recertifies. DECISION November 11, 1994 BLAZSIK, Administrative Judge: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. 632 et seq., and the regulations codified at 13 CFR Part 121. Issue Whether the challenged firm, whose affiliate had been found to be other than small under the same size standard at issue here in a previous case for reasons that were not contract-specific, can bid on the current contract without recertifying. Facts On February 11, 1994, the Department of the Army, Military Sealift Command, Central Technical Activity, Washington, D.C., issued this negotiated solicitation for "Through Ocean and Intermodal Transportation Service" and classified it under Standard Industrial Classification code 4424 (Deep Sea Domestic Transportation of Freight), having a 500-employees size standard. The solicitation was totally set aside for small businesses and initial offers were due on March 14, 1994. Best and final offers were received on May 20, 1994, and on June 6, 1994, the Contracting Officer notified the unsuccessful offerors that the successful offeror was Canal Barge Company, Inc. (Canal Barge or Appellant). As of this date, the contract has not been awarded. On June 13, 1994, five business days after the Contracting Officer revealed the name of the successful offeror, Cuban Caribbean Shipping, Inc. (Cuban), one of the unsuccessful offerors, filed a timely protest against award of contract to Canal Barge1 alleging that, according to a Dun and Bradstreet report, the combined number of employees of Canal Barge and its affiliates exceeds the 500-employees size standard. On the same day, the Contracting Officer forwarded the protest to the Dallas Regional Office of the Small Business Administration (SBA) for a size determination. The Regional Office file contains Canal Barge's SBA Form 355, bylaws, corporate charter, and other information. Canal Barge's SBA Form 355 showed that Canal Barge and its acknowledged affiliates have fewer than 500 employees and therefore satisfy the applicable size standard. Nonetheless, in its determination issued on June 30, 1994, the Regional Office found that Canal Barge is affiliated with Dixie Parking Service, Inc. (Dixie), which owns and operates automobile parking garages and parking lots in the city of New Orleans and the surrounding areas2 As the basis of this finding, the Regional Office acknowledged that neither Canal Barge nor Dixie owned a controlling interest in the other, and no individual shareholder controlled both. However, according to the Regional Office, the principal shareholders of the two companies were considered to be a "single individual" because of their familial relationship, creating a presumptive identity of interest between the two firms. In finding an "identity of interest" between Dixie and Canal Barge, the Regional Office relied upon the regulation at 13 CFR 121.401(d), which provides that "[a]ffiliation can arise between or among two or more persons with an identity of interest, such as members of the same family or persons with common investment in more than one concern...." Under that provision, the Regional Office treated the principal Canal Barge shareholders (Mrs. E.J. Huger, Mr. J.M. Jones, Jr., and Mrs. S.J. Gundlach, all siblings), and the principal Dixie shareholder (Mr. J.M. Huger, son of Mrs. E.J. Huger) as if they were one person. The Regional Office concluded that, accordingly, Dixie was an affiliate of Canal Barge and Dixie's employees had to be combined with those of Canal Barge and its acknowledged affiliates. The result showed that, when all the employees were counted, Canal Barge exceeded the 500 employees size standard.3 The Regional Office also noted that one of Canal Barge's affiliates, Pontchartrain Materials, was found to be other than small for the same size standard as at issue here in 1987. That determination was sustained by this Office in Size Appeal of Pontchartrain Materials Corp., No. 2755 (1987). In this connection, the Regional Office observed that [w]hile significant changes have occurred in Canal Barge and some of the other affiliates, it and those firms found to be affiliated with it in that decision should have sought recertification prior to submitting a bid as a small business under a government procurement employing that or a smaller size standard. Canal Barge received the Regional Office determination on July 1, 1994, and filed a timely appeal postmarked July 8, 1994.4 Canal Barge argues that, contrary to the Regional Office determination, there is no identity of interest between the Canal Barge and Dixie shareholders because the Regional Office failed to consider: (1) the April 30, 1992 Exchange Agreement by which J.M. Jones, Jr. and Mrs. S.J. Gundlach transferred all of their pre-existing shares of Dixie to Mr. J.M. Huger (son of E.J. Huger) in exchange for apparently 75% of his directly-owned shares of Canal Barge; (2) the fact that Mrs. E.J. Huger is a passive investor who is disinvolved with the management of Canal Barge and Dixie; and (3) presuming that J.M. Huger, his uncle J.M. Jones, Jr., and his aunt Mrs. S.J. Gundlach should be considered as single person with an identity of interest, case precedent holds that the remote relationship of aunt, uncle, and nephew does not create a presumption of an identity of interest between the individuals, citing Size Appeal of H.C. Trans Co. Inc., No. 2144 (1985), in support. Thus, the Regional Office could not apply to the aunt-uncle-nephew relationship an identity of interest. To demonstrate that the 1992 Exchange Agreement severed Canal Barge from Dixie, Canal Barge recites the following facts based upon affidavits by Andrew Hoffman, Assistant Treasurer of Canal Barge and J.M. Huger, Director and Vice President of Dixie submitted with the appeal.5 Prior to April 30, 1992, the three siblings (J.M. Jones, Jr., and his sisters, E.J. Huger and S.J. Gundlach) were the principal shareholders of both Canal Barge and Dixie. During this period, day-to-day operations of Dixie were handled by an independent contractor, Service Systems Parking, Inc. (Service Systems). In December 1990, J.M. Huger (son of E.J. Huger) was employed by Service Systems and gradually began to assume more responsibility for managing the parking facilities. Because by 1992 he wanted to run Dixie as his own company, a series of steps were undertaken to establish his control. Through the execution of the April 30 Exchange Agreement, S.J. Gundlach (J.M. Huger's aunt) and J. M. Jones, Jr. (J.M. Huger's uncle) exchanged all of their stock in Dixie for approximately 76% of the stock J.M. Huger owned in Canal Barge. Contemporaneous with this transaction, the management structure of Dixie was altered and J.M. Huger became Vice President of Dixie and a member of its Board of Directors. His mother, E.J. Huger, resigned as Vice President of Dixie and thereafter held no position as either an officer or director of Dixie. Later, J.M. Jones, Jr. resigned from his previous positions in Dixie. Finally, the management contract between Dixie and Service Systems expired on March 31, 1992 and was not renewed. Canal Barge argues that, as a result of the 1992 Exchange Agreement and the other contemporaneous events, J. M. Huger controls Dixie. His block of stock in the firm (44%) is large as compared with any other shareholder and, pursuant to 13 CFR 121.401(e)(2), Mr. Huger is in complete control of Dixie. Thus, Canal Barge argues, there has been a clean break between Canal Barge and Dixie. Further, since E.J. Huger (J.M. Huger's mother) is not involved in the management of Canal, is not a member of its Board of Directors, nor an officer, she does not have an identity of interest with her siblings by virtue of her lack of involvement in the company's business. Finally, J.M. Huger cannot be linked to Dixie through his aunt and uncle (S.J. Gundlach and J.M. Jones, Jr.) because the familial tie between a nephew and his aunt or uncle is too remote as shown by case precedent, supra. Under any circumstances, in Canal Barge's view, the Regional Office's linkage between J.M. Huger and the three principal shareholders of Canal depends entirely upon a presumed identity of interest between E.J. Huger and her son, J.M. Huger. All other relationships between the two companies are too remote or immaterial to support affiliation. On July 25, 1994, Cuban filed a reply to the appeal arguing that, inasmuch as Canal Barge and one of its affiliates had been found to be other than small under the same size standard as at issue here, and had not recertified, pursuant to the provisions of 13 CFR 121.1606(h)(3), Canal Barge was prohibited from bidding on any small business set-aside without recertification. On August 1, 1994, Canal Barge filed a motion for leave to file additional comments to Cuban's reply. Canal Barge's motion was filed after close of record and no reason was given for the late request. Ordinarily a reply to a reply is not permitted. The motion is denied and the additional comments have not been considered. Discussion The SBA regulation at 13 CFR 121.1606(h) states: (3) If SBA has made a formal size determination that a particular concern is not small, the concern will be deemed ineligible within such applicable size standard for any assistance under the Small Business Act or the Small Business Investment Act of 1958, unless it is thereafter recertified by SBA as a small business.... The record shows that one of Appellant's affiliates, Pontchartrain Materials, was found to be other than small under a 500employee size standard. Size Appeal of Pontchartrain Materials Corp., id. The record also shows that Appellant has not recertified itself under a 500-employee size standard. While 13 CFR 121.1607(b) does not require recertification if the adverse SBA size determination is based solely on a finding of affiliation due to a joint venture or is based on an ineligible manufacturer where "the eligible small business bidder...is a nonmanufacturer...," it is obvious from the Panel's previous decision in No. 2755 that Pontchartrain Materials was found to be other than small for reasons that were not contract-specific. In these circumstances, the conclusions in No. 2755 are still in effect inasmuch as neither Pontchartrain Materials nor Appellant have recertified as a small business, and Appellant has not denied that it has failed to apply for recertification. Accordingly, Appellant is not eligible to receive this contract or any contract having a 500-employee size standard until it recertifies. See Size Appeal of Oregon Freeze Dry. Inc., No. 3750, at 3 (1993); Size Appeal of Heritage Reporting Corporation, No. 3734 (1993); and Size Appeal of Prince George's Contractors Inc., No. 3716, at 5 (1992). Conclusion For the above reasons, the Regional Office determination is AFFIRMED, and the appeal is DENIED. This constitutes the final decision of the Small Business Administration. See 13 CFR 121.1720(a), (b), and (c). ____________________________ Gloria E. Blazsik Administrative Judge _______________________________ 1 See 13 CFR 121.1603(a)(2). 2 It is uncontroverted that Canal Barge and Dixie are in separate businesses and do not occupy the same building. 3 The family relationships involved in this case are as follows: Three siblings: J.M. Jones, Jr. S.J. Gundlach E.J. Huger (Brother) (Sister) (Sister) F.F. Jones J.M. Huger (daughter) (Son) The major shareholders in the two companies are as follows: Canal Barge Dixie J.M. Jones, Jr. (22%) J.M. Huger (44.4%) E.F. Jones (11%) E.J. Huger (15.6%) S.J. Gundlach (21.2%) E.P. Burton (15%) E.J. Huger (18.4%) 4 Thus, the appeal was filed within the five business day rule set forth at 13 CFR 121.1705(a)(2) and will apply to the current solicitation. July 4, 1994, was a legal holiday. 5 The text of the April 30, 1992, Exchange Agreement is also submitted with the appeal.